Brief Summary

Execution — Summary judgment — National Credit Act — Applicant sought summary judgment for arrears under an indemnity bond agreement after respondents defaulted — Respondents claimed protection under debt review provisions of the National Credit Act — Court held that the respondents' application for debt review was ineffective due to their default prior to the application, thus allowing the applicant to proceed with summary judgment.

Comprehensive Summary

Summary of Judgment

1. Introduction

The proceedings were an application for summary judgment in the North Gauteng High Court, Pretoria. The applicant, Changing Tides 17 (Pty) Ltd, sought judgment against the first and second respondents, Dirk Christoffel Jacobus Grobler and Susara Johanna Elizabeth Grobler, for payment of R670 809,55 together with interest and costs, arising from an alleged default under an “indemnity bond agreement”. The applicant also sought an order declaring the mortgaged property specially executable.

The dispute arose in the context of the National Credit Act 34 of 2005 (“the Act”), which the court accepted as applicable because the agreement constituted a credit agreement. The litigation occurred against the background of the respondents’ attempts to obtain relief through the Act’s debt review and debt rearrangement mechanisms, and the applicant’s termination of a debt review in terms of section 86(10).

Procedurally, the agreement was concluded in August 2006 and the respondents fell into arrears prior to July 2009. The respondents engaged the debt review process on more than one occasion (through different debt counsellors and different magistrates’ courts). The applicant served summons on 24 February 2010. The summary judgment application was brought on 18 March 2010 and, after postponements and further argument (including additional heads filed in February 2011 in light of developments in case law), the matter was determined in this judgment delivered on 2 June 2011.

2. Material Facts

It was common cause that the respondents had defaulted under the credit agreement and were in arrears prior to July 2009. The account statement (referred to by the court) indicated that instalment payments had already become irregular and intermittent during 2007, and that the respondents were in default when they sought debt review in 2008.

The court accepted, on the papers and on the content of the applicant’s notice, that the respondents had applied for debt review on 6 June 2008. A notice dated 7 September 2009 was delivered by the applicant (addressed to the debt counsellor, the first respondent, and the National Credit Regulator) purporting to terminate the debt review in terms of section 86(10) on the basis that (i) the respondents were in arrears and in default, and (ii) more than 60 days had elapsed since the application for debt review.

During July 2009, the respondents launched an application in the Mokopane Magistrate’s Court for an order declaring them over-indebted and restructuring their obligations. The court noted that the respondents’ affidavit opposing summary judgment was incomplete about the debt counsellor’s prior involvement and the precise basis of this application, but treated it (on the probabilities and given the circumstances) as an application of the type contemplated by section 86(9) (following a debt counsellor’s rejection of a debt review application).

The Mokopane application was later struck from the roll in September 2009 for lack of jurisdiction after the respondents relocated to Witbank, and the papers did not show that any transfer application was made to a court with jurisdiction.

A second debt counsellor, WJ Le Roux, subsequently brought an application on 4 January 2010 in the Witbank Magistrate’s Court, seeking orders declaring the respondents over-indebted, rearranging their obligations under sections cited in the Act, and additionally seeking an order (in terms of section 86(11)) compelling credit providers who had terminated debt review to resume the process. The seventh respondent in those proceedings, SA Home Loans (Pty) Ltd (described as associated with the applicant), opposed that application. The Witbank matter was postponed on more than one occasion, removed from the roll on 4 March 2010 to allow a fuller application, and then refiled on 5 March 2010 with a set-down date of 18 June 2010.

While the Witbank proceedings were unfolding, the applicant served summons on 24 February 2010 for payment of the principal debt and an order of executability. The summary judgment application was then pursued in the High Court.

On 1 July 2010, the Witbank Magistrate’s Court purportedly made a debt rearrangement order in terms of section 87 reducing the monthly instalment under the agreement from approximately R5 600 to R2 434,49. The order did not stipulate the period for which the reduced instalment would apply, and the court assumed it would have been for the remaining term of the loan. The High Court record did not establish whether the respondents remained compliant with the purported rearrangement order, and the court treated that uncertainty as material to the exercise of its discretion but not as establishing a substantive defence on the papers as they stood.

3. Legal Issues

The central questions concerned the legal effect of a section 86(10) termination of debt review and the consequences for subsequent debt review and enforcement proceedings, particularly in light of changing appellate authority.

The court was required to determine, in substance, whether the respondents had disclosed a bona fide defence sufficient to resist summary judgment, where that defence depended on the proposition that the credit agreement was subject to a pending debt review, or a valid debt rearrangement process/order, such that enforcement should be barred or postponed.

More specifically, the matter required determination of (i) whether the applicant’s termination of the initial debt review in terms of section 86(10) was competent and effective given that debt review steps had been taken; (ii) whether the respondents could suspend enforcement by initiating a second debt review under section 86(1) after a prior termination under section 86(10) but before summons; and (iii) whether the Witbank Magistrate’s Court had jurisdiction to make an order that effectively resumed a terminated debt review and rearranged obligations in circumstances where the enforcement proceedings were in the High Court.

These issues were predominantly issues of law and the application of statutory provisions to established or largely common-cause facts, with an additional discretionary component arising from the court’s power to grant or refuse summary judgment and to manage the matter in a way consistent with justice where the statutory scheme contemplated possible resumption of debt review under section 86(11).

4. Court’s Reasoning

The court treated the matter as governed by the statutory framework in sections 86, 87, 129 and 130 of the National Credit Act, and by the then-recent authoritative interpretation of sections 86(10) and 86(11) by the Supreme Court of Appeal in Collett v Firstrand Bank. The court recorded that the respondents relied heavily on Wesbank v Papier, which had adopted a contextual and purposive interpretation under which a section 86(10) termination would not be competent if served after certain steps had been taken to refer the matter to the magistrates’ court. However, the court held that Papier had been overruled by the SCA in Collett.

Applying Collett, the court emphasised the distinction between consumers who apply for debt review before default and those who apply while in default. It accepted that where a consumer is in default, section 86(10) confers on the credit provider a right to terminate the debt review at least 60 business days after the application for debt review. The court understood Collett as rejecting an interpretation that would allow enforcement to be postponed indefinitely merely because a consumer had taken steps in the debt review or rearrangement process. Instead, the statutory scheme was understood to provide a 60-day moratorium for attempts at resolution, after which enforcement may proceed subject to the enforcing court’s discretion under section 86(11).

The court further held that the balancing mechanism in the Act lies in section 86(11), which allows the court “hearing the matter” (in enforcement proceedings) to order that the debt review resume on just conditions. Endorsing the approach in Mercedes Benz Financial Services South Africa (Pty) Ltd v Dunga, the court accepted that section 86(11) should be read to include the High Court as well as the magistrates’ court, with the result that the enforcing court, whichever it is, may consider resumption of the debt review. At the same time, the court held that a court hearing a section 87 rearrangement application (as distinct from the court hearing enforcement proceedings) does not have jurisdiction under section 86(11) to resume a terminated review; that power resides only in the court seized with enforcement.

On the facts, the court concluded that the applicant’s section 86(10) notice of 7 September 2009 had been delivered when the respondents were in default and after the lapse of the required period from the original debt review application, with the consequence that the debt review was terminated. The court reasoned that, even if the Mokopane Magistrate’s Court had had jurisdiction, it would not have been permitted to proceed to rearrange the respondents’ obligations in relation to that terminated review, because only an enforcing court could consider resumption in terms of section 86(11).

The court then addressed whether the respondents could rely on a second debt review (initiated through a different debt counsellor and referred to the Witbank Magistrate’s Court) to delay enforcement after termination of the first review. It acknowledged that section 86(1) does not expressly limit the number of debt review applications. However, it interpreted section 86(2) as imposing a functional limitation: once the credit provider has proceeded to take the steps contemplated in section 129 to enforce the agreement, a new debt review application is not competent in respect of that agreement. The court treated a section 86(10) termination notice as itself being a step contemplated in section 129 for purposes of enforcement, noting also that section 129(1)(b)(i) recognises a section 86(10) notice as an alternative to a section 129(1)(a) notice. On that approach, the second debt review did not create an impediment to enforcement after the earlier termination, and allowing repeated applications would impose an undue burden on credit providers inconsistent with the balance endorsed in Collett.

In addition, the court relied on section 130(1)(a), which permits a credit provider to approach the court to enforce a credit agreement where the consumer is in default and the statutory time periods have elapsed after delivery of the relevant notice. The court noted a drafting error in section 130(1)(a) (a reference to section 86(9) where section 86(10) was clearly intended), but treated that as not affecting the substance of the statutory entitlement to enforce after termination under section 86(10).

Having concluded that the respondents’ affidavits did not disclose a bona fide defence, the court nevertheless considered the discretionary dimension of summary judgment. Referring to Joob Joob Investments (Pty) Ltd v Stocks Mavundla Zek Joint Venture and the discussion in Collett, it recognised that summary judgment is an extraordinary and stringent remedy, and that a court retains an overriding discretion to refuse it, including where a consumer might show that a credit provider did not participate meaningfully in the debt review process or where it would be appropriate to afford an opportunity to seek resumption under section 86(11).

The court considered that the purported Witbank rearrangement order reduced the instalment to less than half of the contractual amount and that its adequacy and feasibility were uncertain. It also considered that the purported order was invalid (in the sense that the Witbank Magistrate’s Court was not the enforcing court and thus lacked jurisdiction to resume the terminated debt review under section 86(11)), but that it had not yet been set aside and that the record did not contain full information about the debt review history. In the interests of justice, and because the law had been uncertain until clarified by the SCA in Collett shortly before judgment, the court chose to adjourn rather than grant summary judgment outright, to allow proper section 86(11) proceedings and a challenge to the magistrates’ order.

5. Outcome and Relief

The court did not grant summary judgment at that stage. The application for summary judgment was postponed sine die.

The respondents were directed to bring an application for resumption of the debt review in terms of section 86(11) within 10 days of the order, failing which the applicant was permitted to set the summary judgment application down again without further notice to the respondents.

The court made no final order on costs and reserved costs.

Cases Cited

Wesbank, a division of Firstrand Bank Ltd v Papier 2011 (2) SA 395 (WCC).

Collett v Firstrand Bank (766/2010) [2011] ZASCA 78 (27 May 2011).

Mercedes Benz Financial Services South Africa (Pty) Ltd v Dunga 2011 (1) SA 374 (WCC).

Joob Joob Investments (Pty) Ltd v Stocks Mavundla Zek Joint Venture 2009 (5) SA 1 (SCA).

Legislation Cited

National Credit Act 34 of 2005, including sections 79, 86(1), 86(2), 86(4), 86(7), 86(8), 86(9), 86(10), 86(11), 87, 129, 130.

Rules of Court Cited

No specific rule of court was expressly cited in the judgment.

Held

The High Court held that, following Collett v Firstrand Bank, a credit provider may terminate a debt review under section 86(10) where the consumer is in default and the statutory period has elapsed, and that the termination prevents further suspension of enforcement through ongoing debt review steps except where the enforcing court orders resumption under section 86(11).

The court held that a consumer is not entitled, after a section 86(10) termination, to further delay enforcement by initiating a fresh debt review under section 86(1) before summons, because the termination notice constitutes a step contemplated in section 129 and triggers the limitation in section 86(2).

The court held that the Witbank Magistrate’s Court, not being the court hearing enforcement proceedings, lacked jurisdiction under section 86(11) to resume the terminated debt review, with the result that the purported rearrangement order did not constitute a valid basis on the papers to resist enforcement in the High Court.

Notwithstanding the absence of a disclosed bona fide defence, the court exercised its discretion to postpone the summary judgment application to allow the respondents to bring a proper section 86(11) resumption application and to allow the applicant to pursue setting aside of the magistrates’ order, with costs reserved.

LEGAL PRINCIPLES

The statutory right in section 86(10) permits a credit provider to terminate a debt review only where the consumer is in default under the credit agreement and at least the required period has elapsed after the consumer applied for debt review; where the consumer is not in default, termination under section 86(10) is not available.

Termination under section 86(10) does not render the consumer without remedy, because section 86(11) empowers the court hearing enforcement proceedings (interpreted to include the High Court) to order resumption of debt review on conditions considered just, thereby balancing the interests of consumers and credit providers.

After termination under section 86(10), the competence to order resumption of the review is confined to the enforcing court and does not vest in a court dealing with a separate rearrangement application; enforcement should not be indefinitely postponed by debt review steps that are not anchored to a proper section 86(11) application before the enforcing court.

The limitation in section 86(2) operates to prevent repeated or renewed debt review applications once the credit provider has taken steps contemplated in section 129 to enforce the agreement; for these purposes, a section 86(10) termination notice is treated as a step contemplated in section 129.

Summary judgment remains an extraordinary remedy, and even where no bona fide defence is disclosed on the affidavits, the court retains an overriding discretion to refuse or postpone summary judgment in appropriate circumstances, including where justice requires an opportunity for proper statutory processes (such as section 86(11) resumption) to be pursued.

Changing Tides 17 (Pty) Ltd v Grobler and Another ([2012] 3 All SA 518 (GNP)) [2011] ZAGPPHC 235; [2011] ZAGPPHC 84 (2 June 2011)