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[2014] ZASCA 62
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Asmal v Essa (38/2013) [2014] ZASCA 62; [2014] 3 All SA 115 (SCA); 2016 (1) SA 95 (SCA) (14 May 2014)
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
REPORTABLE
Case
No: 38/2013
DATE:
14 MAY 2014
In
the matter between:
ASMAL
AHMED
................................................................................................
Appellant
And
ESSA
MAH
A
MED HAROON
NOOR
.........................................................
Respondent
Neutral
citation
:
Asmal
v Essa
(38/2013)
[2013] ZASCA 62
(14
May 2014)
Coram:
MPATI P, LEWIS, MAYA, SHONGWE JJA and MATHOPO AJA
Heard:
14 March 2014
Delivered:
14 May 2014
Summary:
National Credit Act 34 of 2005
–
whether loan agreements are credit agreements in
terms of the Act – unregistered lender given undated blank
cheques for repayment
which included participating profit shares to
be stipulated by borrower – cheques dishonoured upon
presentment – loan
agreements not credit agreements and profit
shares not ‘charges’ under
ss 1
and
8
of the Act
respectively – cheques constituted distinct contracts in
writing and provisional sentence competent – holder
for value
of cheques not obliged when suing the borrower for provisional
sentence to comply with
s 40(1)
and
s 129
read with
s 130
of the Act.
ORDER
On
appeal from:
KwaZulu-Natal
High
Court, Pietermaritzburg (Seegobin J sitting as a court of first
instance):
The appeal is dismissed with
costs including the costs of two counsel where employed.
JUDGMENT
MAYA
JA
:
(MPATI
P, LEWIS JA, SHONGWE JA, MATHOPO AJA concurring)
[1]
The
central issue in this appeal is whether the respondent was obliged to
comply with the provisions of ss 40(1), 129 and 130 of
the National
Credit Act 34 of 2005 (the Act) before instituting provisional
sentence proceedings based on cheques drawn in his
favour in respect
of loans he advanced to the appellant. The cheques were dishonoured
when presented for payment because the appellant
had countermanded
payment. The KwaZulu-Natal High Court (Seegobin J) answered the
question in the respondent’s favour. It
decided that the Act
did not apply to the parties’ loan agreements mainly because
they were not secured loans as defined
in the Act. Consequently, the
court below granted provisional sentence against the appellant in
respect of the money claims
[1]
based
on the cheques. The appeal against that judgment is with the leave of
this court.
[2]
The parties’ contractual relationship and the circumstances
surrounding the exchange of the cheques
were matters of strenuous
dispute in the court below. According to the respondent, the
appellant gave him the cheques as payment
for the loans he advanced
to him for the purchase and resale of medical equipment to hospitals
and a sectional title unit. The
amounts and dates on the cheques,
which would be inserted by the respondent when so instructed by the
appellant, would each include
a ‘participating share of the
profit’ made by the appellant on these transactions. The profit
share amounts would be
determined by the appellant at his discretion.
The appellant, on the other hand, contended that the loans were
advanced not to
him but to Yashen Satyendra Persadh for whom he stood
surety. Because Persadh did not have a cheque account, repayments to
the
respondent would be effected by an electronic funds transfer or a
cheque provided by the appellant. The undated cheques were not
meant
to be deposited and served merely as proof of the loans. When the
loan amounts requested and advanced increased in time,
the respondent
required acknowledgements of debt from Persadh and deeds of
suretyship from the appellant in respect of loans
above R1 million,
which were duly executed. Signed copies were not, however, furnished
by the appellant as attachments to his answering
affidavit.
[3]
The following facts were not disputed. The respondent was not
registered as a credit provider in terms
of the Act.
[2]
The
appellant inserted the respondent’s name, signed and crossed
each cheque. He then marked two of the cheques ‘not
transferable’ and one ‘not negotiable’. The amounts
and dates thereon were, however, inserted by the respondent
and the
dates represented the time when payment of each of the relevant
amounts was due. The respondent held the cheques for value
and drew
them on his First National Bank banking account. Each of the cheques
was presented for payment in accordance with its
tenor. The cheques
were, however, dishonoured because the appellant had countermanded
payment. As the bank had no obligation to
honour them, notice of
dishonour as regards the appellant was accordingly dispensed with
under s 48(2)(
c
)(
v
)
of the Bills of Exchange Act 34 of 1964.
[4]
The appellant defended the proceedings on the basis that the cheques
were given as security for the
repayment of underlying loans which,
on a proper interpretation of s 8(4)(
d
) of the Act, amounted
to ‘secured loans’ as envisaged therein. As s 4(5)(
a
)
expressly excludes the use of cheques as a means to pay for goods and
services rendered from the operation of the Act, but says
nothing
about cheques as a method for repayment for secured loans, it had to
be presumed that there was no intention to exclude
the latter.
Alternatively, continued the argument, the loans fell within the
ambit of s 8(4)(
f
) of the Act because the portion of the
profits from the transactions in respect of which the loans were
advanced, which the respondent
was to receive, constituted ‘a
charge’ as envisaged in that section. Because of the
respondent’s failure to comply
with the relevant provisions of
the Act, provisional sentence could, therefore, not be granted.
It was also argued that to
exclude dishonoured cheques from the ambit
of the Act would allow unscrupulous creditors to avoid the measures
built into the Act
to protect consumers.
[5]
As indicated above, the court below was not persuaded by the
appellant’s contentions. It found
that the Act did not apply to
the transactions because the respondent did not retain the cheques as
contemplated in the Act’s
definition of a ‘secured loan’.
This was so, held the court, because when the appellant delivered the
cheques to the
respondent, he did not pledge or cede the cheques but
promised that they would be honoured. In the court’s opinion,
to hold
that the cheques could be pledged as security under the Act
would mean that cheques in respect of loans were subject to the Act.
This, in turn, would materially alter the common law applicable to
provisional sentence which treats transactions based on cheques
as
totally distinct from those based on underlying agreements and
entitles the creditor to elect which cause of action to pursue.
And
the legislature could not have intended such a result, at least not
impliedly, and would have expressly said so if it did.
The court
below further held that a ‘charge’ under the Act had to
be known to both parties before they concluded the
agreement; an
element missing in this case. The court below concluded that as the
respondent, who was not obliged to register as
a credit grantor under
the Act, elected to proceed on the cheques which were not subject to
the Act, he was entitled to seek provisional
sentence without
complying with the notice requirements of ss 129 and 130 thereof.
[6]
The issues narrowed significantly on appeal before us. The appellant
wholly conceded the respondent’s
version of the facts, wisely
so, in my view, having regard to the manifestly poor quality of his
own account. The essence of the
case now argued on his behalf was the
following. The moneys advanced were loans and the profit share
amounts upon which the parties
agreed constituted ‘a use
consideration’ for the said loans. In light of s 4(5)(
a
)
of the Act, the loan transactions constituted credit agreements. A
credit agreement, as defined in the Act, entails credit being
granted
and the imposition of a ‘fee, charge or interest’ in
respect of the deferred repayment, for the use of the
credit. The
profit shares qualified as a ‘charge’, one of the three
wide terms used in s 8(4)(
f
) of the Act to describe payment
for the use of money owed. Therefore the loans, of which the cheques
were part and parcel, constituted
credit agreements and were subject
to the provisions of the Act. And because the respondent was not
registered as a credit provider,
in breach of s 40(1)(
b
) of
the Act, the credit agreements were unlawful and thus void in terms
of s 89(2)(
d
). The cheques could not found provisional
sentence in the circumstances.
[7]
It is well-recognized that a cheque that has been properly drawn and
issued constitutes a contract in
writing, which enjoys the
characteristic of negotiability, and must be founded on a
justa
causa debendi
,
or reasonable cause in order to be valid and enforceable.
[3]
The
obligation to pay, represented by the cheque, which generally arises
from some transaction (contractual or otherwise), is dependent
upon
the validity of that underlying transaction.
[4]
Thus
if, for example, the underlying transaction is voidable, illegal or
there has been a failure to perform, a claim by the payee
for
enforcement of the contract will not succeed.
[5]
The
validity of the underlying loan agreements concluded by the parties
here therefore bears some relevance for the enforcement
of the
obligations arising from the cheques and the competence of the
provisional sentence relief in that exercise.
[8]
The Act
defines a
‘
credit
agreement’ widely. In s 1 it describes it as an ‘agreement
that meets all the criteria set out in section 8’.
The relevant
parts of s 8, in turn, provide:
‘
(1)
Subject to subsection (2), an agreement constitutes a credit
agreement for the purposes of this Act if it is–
(a)
a credit facility, as described in
subsection (3);
(b)
a credit transaction, as described in
subsection (4);
(c)
…
(d)
Any combination of the above.
(2)
…
(3)
An agreement, irrespective of its form but not including an agreement
contemplated in subsection (2) or section 4(6)(b), constitutes
a
credit facility if, in terms of that agreement–
(
a
)
a credit provider undertakes–
(i)
to … pay an amount or amounts, as determined by the consumer
from time to time, to the consumer or on behalf
of, or at
the direction of, the consumer; and
(ii)
either to–
(
aa
)
defer the consumer’s obligation to … repay to the credit
provider any part of an
amount contemplated in subparagraph (i); or
(
bb
)
…; and
(
b
)
any charge, fee or interest is payable to the credit provider in
respect of–
(i)
any amount deferred as contemplated in paragraph (
a
)(ii)(
aa
);
or
…
(4)
An agreement, irrespective of its form but not including an agreement
contemplated in subsection (2), constitutes a credit agreement
if it
is–
…
(d)
… a secured loan
(f)
any other agreement, other than a credit facility or credit
guarantee, in terms of which payment of an amount owed by
one person
to another is deferred, and any charge, fee or interest is payable to
the credit provider in respect of–
(i)
the agreement; or
(ii)
the amount that has been deferred.’
[9]
Common to all the forms of a credit agreement, including credit
facilities and credit transactions,
is the requirement of payment of
a ‘charge’, ‘fee’ or ‘interest’
as envisaged in ss 8(3)(
a
)(ii)
and 8(4)(
f
)(ii),
respectively. The terms ‘charge’, ‘fee’ and
‘interest’ are, however, not defined in the
Act. Bearing
in mind that the statutory context of s 8 (and indeed all the
provisions of the Act) is important in the interpretation
of its
provisions, it is clear from their ordinary meaning and the context
in which the terms are used that they were meant to
cover any
consideration or payment to be made by a credit borrower to a credit
provider for the use of credit under the auspices
of the Act. Regard
must also be had and effect given to the objects and purposes of the
Act, set out in s 3, in interpreting its
provisions.
[6]
Among
these purposes is the promotion of ‘a fair, transparent,
competitive, sustainable, responsible, efficient, effective
…
credit market and industry and the [protection of] consumers by …
promoting responsibility in the credit market
by … encouraging
responsible borrowing, avoidance of over-indebtedness and fulfilment
of financial obligations by consumers
… promoting equity in
the credit market by balancing respective rights and responsibility
of credit providers and consumers
… addressing and correcting
imbalances in negotiating power between consumers and credit
providers by … providing
consumers with adequate disclosure of
standardised information in order to make informed choices’.
[10]
Apart from these objectives, the general tenor of the whole Act makes
clear that one of its overarching objectives
is to ensure that the
parties to a credit agreement, especially the consumer, are fully
aware of the actual risks and liabilities
involved in the proposed
undertaking. For example, ss 100 to 106 of Part C of the Act deal
with ‘Consumer’s liability,
interest, charges and fees’.
The sections make provision for ‘cost of credit’ which
entails the specific types
of fees, interest, credit insurance and
default administration charges that a credit provider may impose.
They also prescribe the
maximum amounts and the methods by which such
amounts must be computed, which the credit provider may not change
unilaterally.
The painstaking detail of these provisions leaves no
doubt that certainty regarding the cost of the proposed credit is
imperative.
Sections 80(1) and 81 of the Act, which deal with
reckless credit, are similarly couched. They require the credit
provider to conduct
an assessment to ensure that the consumer
‘understands or appreciates’ the risks, costs or
obligations under the proposed
credit agreement.
[11]
These measures are obviously intended to protect the consumer from
any hidden costs that may arise from the credit
agreement and to
ensure that he or she has an opportunity to consider the precise risk
and cost involved before binding himself
or herself. In that case,
the parties must quantify the charge, fee or interest and specify the
manner in which it is to be paid
when they determine their
contractual terms and conclude the credit agreement. It must follow
that the indeterminate profit shares
agreed upon by the appellant and
the respondent, for which no date of repayment was fixed, which were
not guaranteed and could
well not even have eventuated, and whose
value, if any, was to be determined by the appellant at his sole
discretion, cannot qualify
as ‘a charge’ under the Act.
The submission made on the appellant’s behalf that whether a
loan is a credit agreement
within the meaning of the Act depends not
on its outcome but on its nature – ie what makes the loans
credit agreements is
the fact that ‘extra money was asked for
their use’ regardless of whether that ‘extra money’
in the form
of profit shares was not specified or ultimately paid, as
it was put – simply has no merit. Thus, the loans were not
credit
agreements as envisaged by the Act if no charges attached to
them.
[12]
In the light of this finding, the court below correctly rejected the
submission that the loan agreements concluded
by the parties were
secured loans. A ‘secured loan’ is defined in s 1 of the
Act as ‘an agreement, irrespective
of its form but not
including an instalment agreement, in terms of which a person …
advances money or grants credit to another,
and … retains, or
receives a pledge or cession of the title to any movable property or
other thing of value as security
for all amounts due under that
agreement’. It is clear from the facts (and it was wisely not
contended otherwise in argument
before us) that the cheques were not
pledged or ceded to the respondent, a finding made also by the court
below. They were issued
by the appellant with the intention that they
would be honoured on due presentment and, if they were dishonoured,
that the appellant
would compensate the respondent as holder.
[7]
[13] The
appellant’s reliance on the respondent’s non-compliance
with the provisions of s 40(1) of the Act
is yet another non-starter.
According to the section, a person must apply to be registered as a
credit provider if he or she ‘alone
or in conjunction with any
associated person, is the credit provider under at least 100 credit
agreements … or the total
principal debt owed to that credit
provider under all outstanding credit agreements … exceeds the
threshold [of R500 000]
prescribed in terms of s 42(1)’.
These provisions require the existence of credit agreements to kick
in. As pointed out,
there were none here. The respondent, therefore,
had no obligation to register as a credit provider in the
circumstances.
[14] He
similarly had no duty to comply with ss 129 and 130 of the Act before
commencing litigation against the appellant.
The general import of
these provisions is that the credit provider is proscribed from
commencing any legal proceedings against
a consumer, who is in
default under a credit agreement, to enforce it, before first giving
the consumer written notice thereof
and before the lapse of time
during which the consumer has failed to respond thereto or has
rejected the credit provider’s
proposals. These provisions also
presuppose the existence of a credit agreement and cannot apply if
there is none.
[15] The
appellant’s case can find no support from s 4(5)(
a
)
either. In terms of these provisions ‘[i]f a person sells any
goods or services and accepts, as full payment for those goods
or
services … a cheque or similar instrument upon which payment
is subsequently refused for any reason … the resulting
debt
owed to the seller by the issuer of that cheque or charge does not
constitute a credit agreement for any purpose of th[e]
Act’. I
agree with the court below that it makes no sense at all that the
provisions would distinguish between a cheque in
terms of which
payment for goods or services is to be effected and one in terms of
which repayment of a loan is intended by exempting
only the former
from the operation of the Act. Simple logic dictates that both
classes of cheques should similarly be excluded
from the ambit of the
Act. Suffice it to point out the notorious fact that the Act is not a
model of clarity and that a significant
number of its provisions are
fraught with ambiguity and vagueness as attested by the scores of
court decisions interpreting its
various provisions.
[16] All
the indications are that the parties had no intention whatsoever of
concluding credit agreements and bringing
their dealings within the
scope of the Act. The respondent was fully entitled to invoke the
provisional sentence procedure to enforce
his claims, which are
disputed merely on technical grounds. And the reasoning of the court
below and the conclusion it reached
cannot be faulted. The appeal
must accordingly fail.
[17] In
the result, the appeal is dismissed with costs including the costs of
two counsel where employed.
MML
Maya
Judge
of Appeal
APPEARANCES
APPELLANT:
KJ Kemp SC (S
Alberts)
Instructed
by:
K
Maharaj Inc., Durban
Honey
Attorneys, Bloemfontein
RESPONDENT:
CJ Hartzenberg
SC
Instructed
by:
Ganie
& Co., Pietermaritzburg
Symington
& De Kok, Bloemfontein
[1]
R470 000
(less R350 000 subsequently paid) under Case No 7317/10,
R1 875 000 under Case No 7785/10 and R1 290 000
under Case No 7786/10, together with interest and costs.
[2]
The
definition of ‘credit provider’ is set out in s 1
of the Act which reads in relevant part
‘“
credit
provider”, in respect of a credit agreement to which th[e] Act
applies, means–
…
(
e
)
the lender under a secured loan;
…
(
h
)
the party who advances money or credit to another under any other
agreement ….’
[3]
Froman
v Robertson
1971
(1) SA 115
(A) at 120F-G;
Lutzkie
& another NNO v Zenith Concessions Ltd
2003
(6) SA 643
(SCA) para 6.
[4]
Ibid
.
[5]
Above
,
fn
3
.
[6]
In
s 2(1) of the Act.
[7]
Froman
v Robertson
above
at 121 F.