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[2021] ZAGPPHC 32
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Dacqup Finances CC and Another v National Credit Regulator and Another (NCT/127619/201/57(1); A333/19) [2021] ZAGPPHC 32 (8 January 2021)
IN
THE HIGH COURT OF SOUTH AFRICA
(
GAUTENG
DIVISION, PRETORIA)
(1)
REPORTABLE:
NO
(2)
OF INTEREST TO OTHER
JUDGES:
NO
(3)
REVISED.
YES
8
JANUARY 2021
NCT CASE NO:
NCT/127619/201/57(1)
CASE NO: A333/19
In
the matter between:
DACQUP
FINANCES
CC
First Applicant
ABC
FINANCIAL SERVICES
PINETOWN
Second Applicant
and
THE
NATIONAL CREDIT
REGULATOR
First Respondent
THE
NATIONAL CONSUMER
TRIBUNAL
Second Respondent
NEUKIRCHER
J:
1]
This is an appeal against the findings made by the Presiding Tribunal
member
in a judgement dated 24 September 2019. For convenience sake,
the First Respondent in this appeal will be referred to as the NCR,
and the Second Respondent as the Tribunal.
THE FACTS
2]
On 18 October 2018 the NCR conducted a scouting exercise in the
Mooiriver area
of KwaZulu Natal and went to appellant’s
premises in Pinetown. There the scout (a Mr Mbedzi) saw a board which
advertised
“instant loans”. This created the suspicion
that the appellant may not be conducting the affordability
assessments
it is required to do in terms of the National Credit Act
No 34 of 2005 (the Act). Mr Mbedzi then decided to pose as a customer
and an employee informed him that the interest rate applicable to
loans is 30% per month. This then resulted in the complaint and
the
subsequent investigation.
3]
The Memorandum dated 23 October 2018, which set into motion the
investigation
in terms of s136(2) of the Act, reads as follows:
“
During
a scouting exercise conducted on the 18
th
October 2018 in Pinetown KwaZulu Natal, I became aware of ABC
Financial Services.
The
scouting exercises confirmed that Corpclo 538 CC trading as ABC
Financial Services was trading as a credit provider at Shop
30, Pine
City Centre, Pinetown, KwaZulu Natal
[1]
.
It
was noted that advertising material attached hereto on the premises
made use of the words “instant loans” which raised
a
suspicion that the entity is not conducting affordability
assessments.
Further to
this, it was established that the entity charges 30% interest on
short term loans which is in contravention of the Act.
No
window decal was noted on the premises.
In
light of the abovementioned I request that an investigation in terms
of
Section 136(2)
of the
National Credit Act “the
Act” 34
of 2005 be initiated against Corp clo 538 trading as ABC Financial
Services.”
4]
The investigation was set into motion and on 28 December 2019 a
memorandum was
provided where it is clear that the manageress of the
particular branch was interviewed by one Dipuo Mokobane (Mokobane), a
Junior
Inspector: Investigations and Enforcement.
5]
Ten sample credit agreements were provided to Mokobane and the
information provided
by the manageress was that:
5.1
appellant grants short term loans to a maximum of R8,000;
5.2
consumers are required to submit three months bank statements,
identity documents and payslips
when applying for the loans;
5.3
appellant charges 3% interest and does conduct affordability
assessments.
6]
Of the ten assessments conducted it was found that in seven the
consumers were
overcharged in the interest or initiation fee and
components in amounts ranging from R54.83 to R513.88 and that the
affordability
assessments were conducted on “out-dated“
salary advices and “only” three months bank statements.
The inspector
also states
“
Therefore
there is no indication that the credit provider considered existing
obligations reflected on the Bank Statement and the
consumer’s
credit history when conducting affordability assessment.”
7]
In three of the samples, the affordability assessments conducted by
the inspector
found the credit advanced to be reckless.
8]
The investigation thus concluded that:
8.1
sections 80(1)(a)
[2]
,
s80(3)
[3]
and 81(2)
[4]
of the Act were breached;
8.2
the cost of credit charged (i.e. the interest) was not in line with
s101 and 103 of the
Act;
8.3
the Appellant’s advertising material was not in compliance with
Section 76, read with
Regulation 21 of the Act “
in that the
advertising material(s) made of words “low interest” and
“fast approval”
“;
8.4
the Appellant does not provide consumers with pre-agreement
statements as required in terms
of Section 92(1) and (2) of the Act.
9]
In its answering affidavit before the Tribunal, the Appellant took
the following
points
in limine:
9.1
that the NCR did not have a “
reasonable suspicion”
to institute the investigation and the words “
instant loans”
does not indicate that appellant is not conducting proper
affordability assessments. The argument was that the words “
instant
loans”
may reasonably be interpreted to refer to the
efficiency with which the appellant processes credit applications and
the prompt
disbursement of monies to the consumer, once a loan is
approved;
9.2
the NCR failed to comply with due process in referring the matter to
the Tribunal.
10]
As the due process compliant was not argued before us, it is
unnecessary to deal with it
– it was in fact (and in my view
correctly) abandoned.
[5]
11]
At the end of the hearing the Tribunal dismissed the appellant’s
points
in limine
and made the following findings:
“
15.
In the Tribunal’s view, it is well-known that the NCA
introduced a far more rigid and onerous
process on a credit provider
when assessing and approving loans. Any reasonable person would
expect a loan application process
to take some time and require the
submission of numerous documents. The phrase “instant loan”,
in an advertisement
from a credit provider, conveys a very different
impression of the credit provider’s process. The phrase creates
a distinct
impression that the loan application process may be
curtailed or less onerous in some way. The impression immediately
creates a
basis for being suspicious of the application process and
whether it complies with the NCA.
16.
The inspector confirmed on oath that he was told a 30% interest rate
was charged. Whether
or not this was the truth is not relevant to
whether there was a reasonable basis for the investigation. No
evidence was submitted
to show that this evidence was false. Be that
as it may, the advertisement already created a reasonable suspicion
of possible wrongdoing
by the credit provider…”
12]
At the end of the hearing the Tribunal granted the following order:
12.1 the
appellant was found to have engaged in repeated prohibited conduct;
12.2
it was fined R300,000;
12.3
it was ordered
“…
to
appoint an independent auditor (who is registered as a Chartered
Accountant) at its own costs within 30 business days of the
date of
issuing of this judgement. The auditor is to assess all credit
agreements entered into by ABC within the last three years
from the
date of issuing of the judgement. The auditor must assess whether the
interest fees and charges on all credit agreements
were correctly
calculated as per the NCA. Only the credit agreements entered into in
the last three years from the date of this
judgement must be
assessment. Overpaid fees and charges must be reimbursed to the
relevant consumers. The audit is to be completed
within 90 business
days after the auditor has been appointed. The auditor must provide a
final report in this regard to the NCR
within 120 business days after
being appointed...”
13]
It is against this order that the appeal lies. The grounds of appeal
consist of four points
in limine
. Points two and three were
abandoned by Mr. Michau at the outset and it is common cause that a
finding on either of points one
or four would end the appeal.
14]
The two points are, succinctly put:
14.1 that there
was no reasonable suspicion upon which an investigation could have
been initiated; and
14.2 the order
granted, as set out in 12.3 (supra) exceeds the powers of the
Tribunal set out in the Act and thus,
in effect, is
ultra vires
.
15]
As a point of housekeeping it is noted that the Notice of Appeal was
served one day late.
An application for condonation was filed. The
Respondent then advised that the correct procedure was to “reinstate”
the appeal as s148(2)(b)
[6]
of the Act provides for an automatic right of appeal.
16]
Given that the hearing of the appeal (whether it be reinstated or
condoned) is not an issue
before us as respondents are not opposing
this relief, and given the important of the appeal as a whole, I am
of the view that
it is in the interest of justice to grant
condonation and reinstate the appeal.
DID THE INSPECTORS HAVE A
REASONABLE SUSPICION:
17]
Section 76(4)(c)(ii) of the Act states:
“
(4)
An advertisement of the availability of credit, or of goods or
services to be purchased on credit –
(c)
must not –
(ii)
be misleading, fraudulent or deceptive; …”
18]
According to the Inspector, the words “
instant loans”
raised the suspicion that the Appellant “
may not be
conducting proper affordability assessments and consequently, was
contravening the Act.”
19]
And so, the question arises as to the meaning of “
a
reasonable suspicion”
.
20]
In
Duncan
v Minister of Law and Order
[7]
it was described thus:
“
Suspicion
in its ordinary meaning is a state of conjecture or surmise where
proof is lacking; “I suspect but I cannot prove’.
Suspicion arises at or near the starting point of an investigation of
which the obtaining of prima facie proof is at the end.”
21]
Flemming DJP in
Philip
Business Services CC v De Villiers and Others
[8]
stated
“
It
is common cause that the ‘reasonable grounds’ may be
proved even if the evidence does not constitute prima facie
evidence.
The yardstick is not facts which, if proved, will prove the further
elements of entitlements but facts which are adequate
to justify a
suspicion, i.e. a view which has a prospect of turning out to reflect
the truth, even it there is a possibility that
the suspicion may also
turn out to be wrong.”
22]
In regards to the reference in the Philip matter supra, Flemming DJP
referred to the decision
of Le Roux J in
Bruwil
Konstruksie (Edms) Bpk v Whitson NO & Another
[9]
where the provisions of s69 of the Insolvency Act formed the subject
matter of the debate. There, Le Roux J found:
“
It
seems to me that the purpose of the section is clearly to enable the
liquidator or trustee to obtain speedy possession of goods
belonging
to an estate which he suspects or believes on reasonable grounds, to
be assets of the estate. The safeguard to the ordinary
public lies in
the word “reasonable” belief, or “reasonable”
grounds for suspecting… in my view,
it contemplates a lesser
burden that a prima facie case in a court of law, otherwise there
would hardly be any purpose in the section…
It seems to me
that the words “reasonable grounds” imply an
investigation of some kind. The question is how far does
he have to
go in his investigation?
It also
seems clear that the reasonable suspicion which must exist must be an
objective and not a subjective one
…”
23]
In
Farmer’s
Trust v Competition Commission
[10]
Tolmay
J stated the following in dealing with warrants granted under
s46(1)
of the
Competition Act 89 of 1998
and a reconsideration of a warrant
granted
ex
parte
:
“
[27]
The Commission, in order to succeed, needed to
demonstrate that from the information on oath were reasonable grounds
to believe that: (a) a prohibited practice has taken place, is taking
place or is likely to take place on or in these premises;
or
(b) anything connected with an investigation in terms of this Act is
in the possession of, or under the control of, a person who
is on or
in those premises.”
And
[29]
If one considers the aforesaid the Commission needed to prove that
the information provided to
Court demonstrated that there were
reasonable grounds to believe that a prohibited practice was taking
place and that there may
be materials in possession or under the
control of the Respondent, which may be of assistance in the
investigation.
[30]
Counsel for the Commission argued that the Act seems to keep the bar
low for the attaining of
the warrant as this step is merely one of
the starting points of the investigative process. This makes perfect
sense in the context
of an investigation into the possibility of
prohibited practices, which the Act seeks to prevent. Despite Farmers
Trust’s
protestation against the fact that it was not given
notice or be given an opportunity to be heard such notice is not
required.
[31]
The Commission had, on perusal of the facts, reasonable grounds to
believe that the Respondents were engaging in prohibited practices
,
including, amongst other, price fixing or giving of trading
conditions in the market. This believe (sic) resulted in the
necessity
of an investigation to determine whether future action
should be taken and the application for a warrant in terms of Section
46.”
24]
Thus it is clear, in my view, that the “
reasonable
suspicion”
that the Inspector held that the provisions of
the Act were being contravened had to be an objective suspicion.
25]
The question then is whether or not the words “
instant loan”
could, objectively, be said to constitute the trigger a “
reasonable
suspicion”
.
26]
In my view, the answer is “no”. The word “
instant”,
means “
happening
or coming immediately
”
[11]
and synonyms for the word include “
on
the spot, prompt, direct, swift and speedy”.
27]
The appellant submits that the words “
may reasonably be
interpreted to refer to the efficiency with which the Respondent
processes credit applications and the prompt
disbursement of monies
to the customer once a loan is approved. Any other conclusion is
unreasonable.“
28]
Whilst I do not agree with the last sentence of the above quote, I do
agree with the remainder.
29]
In any event, to establish this would have been easy enough: all the
Inspector had to do
would be to pose as a potential customer and
attempt to apply for a loan. If it were so that the provisions of the
Act were not
applied, then indeed there would have been the presence
of “
reasonable suspicion”
and there would have
been grounds for the ensuing investigation.
30]
I also agree with Mr Michau’s submission that when the
investigation itself was initiated,
all that was before the NCR was
the original memorandum dated 23 October 2018
[12]
and therefore this is all that was used as the basis to commence the
investigation. The affidavits that were eventually placed
before the
Tribunal did not form part of the initial memorandum and cannot be
used to decide whether there were grounds for a “reasonable
suspicion” at the outset.
31]
This seems also to be confirmed in
The
National Credit Regulator v Capitec Bank Ltd & Another
[13]
“
[10]
The NCR in initiating a complaint exercises a public power which must
comply with the Constitution, which
is the supreme law and the
doctrine of legality, which is part of that law (Pharmaceutical
Manufacturers Association of SA and
Another: In regard Ex parte
President of the Republic of South Africa and Others 2000(2) SQA 674
(CC) / 2000(3) BCLR 241;
[2000] ZACC 1)
para 20).
The
NCR accordingly cannot arbitrarily, without a reasonable suspicion,
initiate a complaint, generally against what it perceives
to
constitute a prohibited practice. The sanctioning thereof will widely
open the doors to all kinds of abuse.
[11]
It is clear from the provisions of S136 of the NCR that the compliant
must be initiated against
‘an alleged prohibited practice’.
The investigation by the NCR following upon the initiation of a
complaint must be
focussed on the complaint in respect of which a
reasonable suspicion is held or relate to the information available
to the NCR
in respect of which a reasonable suspicion exists. It is
that complaint which will be referred to the tribunal. As is the case
with the Commission, the NCR’s far reaching powers may not be
abused:
‘
For
purposes of a fishing expedition without first having initiated a
valid complaint
based
on a reasonable suspicion
.
It would otherwise mean that the exercise of power would be
unrestricted because there is no prior judicial scrutiny as is the
case with a search warrant.’
(per Harms
DP in Woodlands
[14]
,
para 20 with reference to Sappi Fine Paper (Pty) Ltd b Competition
Commission and Another
[2003] 2 CPLR 272
(CAC) ([2003] ZACAC5) paras
35 and 39)”
32]
In the
Woodlands
matter the question was
“…
whether
there were any jurisdictional requirements for the initiation of a
complaint by the commissioner… The complaint referral
‘is
(subject to s51) a jurisdictional fact for the exercise of the
tribunal’s powers in respect of prohibited practices’
,”
and
[13] …
A complaint has to be ‘initiated’. The commissioner has
exclusive jurisdiction to initiate a complaint
under s49B(1). The
question then arises whether there are any jurisdictional
requirements for the initiation of a complaint by
the commissioner. I
would have thought, as a matter of principle, that the commissioner
must at the very least have been in possession
of information
concerning an alleged practice which, objectively speaking, could
give rise to a reasonable suspicion of the existence
of a prohibited
practice. Without such information there could not be a rational
exercise of power. This is consonant with the
provisions of
s49B(2)(a) which permit anyone to provide the commission with
information concerning a prohibited practice without
submitting a
formal complaint.”
33]
In
Competition
Commission v Yara (SA) (Pty) Ltd and Others
[15]
Brand JA stated:
“
On
the other hand, this judgement should not be understood to authorise
a formal investigation without a complaint initiation, nor
the
initiation of a complaint without reasonable grounds, nor to absolve
the commission of its obligation to provide these grounds
when
challenged to do so.”
34]
Mr Mbikiwa argues that the mere signage “
instant loans”
was sufficient to rouse a “
reasonable suspicion”
.
He argues that:
34.1 if the
loans offered by the Appellant truly were “instant”, then
there was a reasonable suspicion
that the appellant was not
conducting proper affordability assessments and was then contravening
the Act; and
34.2 if the
loans offered by the Appellant were not “instant”, then
the advertisement did not mean
what it said, and there was a
reasonable suspicion that the advertisement breached the Act’s
prohibition on misleading, fraudulent
or deceptive advertising of
credit.
35]
However, bearing in mind the NCR’s memorandum as set out in
para 3 supra, the complaint
was not initiated on the grounds set out
in par 32.2 supra, but rather in respect of 32.1.
36]
The issue of whether or not the Appellant did, in fact, charge 30%
interest was also not
the basis on which the investigation was
initiated.
37]
To allow the NCR to initiate an investigation, such as the one in
this matter, on a mere
signage, sets the bar so low that it offends
the sensibility of what should be good practice. It also offends the
notion of what
should constitute a reasonable suspicion. If indeed, a
reasonable suspicion is formed objectively then there must be
objective
facts which support it - such as that the Inspector
attempted to ascertain the procedure by which the loan application
would take
place and, indeed, how quickly a loan would be advanced.
If the Appellant’s procedures are streamlined, and on the face
of
it, comply with the provisions of the Act, and the loan is
advanced “promptly”, “swiftly” or “speedily”
then (objectively speaking) there cannot be a “reasonable
suspicion” that the Act is being contravened.
38]
Given the manner in which this investigation was initiated I am of
the view that the Appellant
must succeed and given this it is
unnecessary to discuss the second point
in limine
.
39]
Thus the order that is granted is the following:
39.1
The appeal is upheld with costs.
39.2 The order
of the Tribunal is set aside
in toto
and replaced with the
following:
“
The
application is dismissed.”
NEUKIRCHER
J
Judge
of the High Court
Gauteng
Division
I
agree
Judge
of the High Court
Gauteng
Division
Date
of hearing: 3 December 2020
Date
of judgment: 8 January 2021
Hearing
conducted via videoconferencing
Delivered:
This judgement was prepared and authored by the Judge whose name is
reflected and is handed down electronically
by circulation to the
parties/their legal representatives by email and by uploading it to
the electronic file of this matter on
CaseLines. The date for
hand-down is deemed to be 8 January 2021.
Counsel
for applicant: Adv Michau SC
Instructed
by: LLR Incorporated
Counsel
for respondent: Adv Mbikiwa
Instructed
by: M-Incorporated
[1]
The
issue regarding the name of the CC was clarified in a later CIPC
search and nothing turns on this as it is common cause that
appellant was the entity under investigation and the name of the CC
was later amended to that of the appellant
[2]
80.
(1) A credit agreement is reckless if, at the time that the
agreement was made, or at the time when the amount approved in
terms
of the agreement is increased, other than an increase in terms of
section 119(4)-
(a)
the credit provider failed to conduct an assessment as required by
section 81(2), irrespective of what the outcome
of such
an assessment might have concluded at the time; …”
[3]
(3)
When making a determination in terms of this section, the value of-
(a)
any credit facility is the credit limit at that time under that
credit facility;
(b)
any pre-existing credit guarantee is-
(i)
the settlement value of the credit agreement that it guarantees, if
the guarantor has been called upon to honour that guarantee;
or
(ii)
the settlement value of the credit agreement that it guarantees,
discounted by a prescribed factor; and
(c)
any new credit guarantee is the settlement value of the credit
agreement that it guarantees, discounted by a prescribed factor.”
[4]
“
(2)
A credit provider must not enter into a credit agreement without
first taking 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 re-payment 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 the consumer has
such a
purpose for applying for that credit agreement.”
[5]
Competition
Commission v Yara (SA)(Pty)Ltd and Others
2013 (6) SA 404
(SCA) at
par [24]
[6]
“
Appeals
and reviews
148.
(1) A participant in a hearing before a single member of the
Tribunal may appeal a decision by that member to a full panel
of the
Tribunal.
(2) Subject to the rules of
the High Court, a participant in a hearing before a full panel of
the Tribunal may –
(a) apply to the High Court
to review the decision of the Tribunal in that matter; or
(b)
appeal to the High Court against the decision of the Tribunal in
that matter, other than a decision in terms of section 138.”
[7]
1986
(2) SA 805(A)
at 819 I, approving the test laid down in Shaaban Biq
Hussain & Others v
Chong Fook Kam & Another
[1969] 3 ALL ER 1626
(PC) at 1630
[8]
1991
(3) SA 552
(W) at 554A-B
[9]
1980
(4) SA 703(T)
at 711A-E
[10]
2020
(4) SA 541 (GP)
[11]
www.bing.com
- as
an adjective
[12]
See
par 3 supra
[13]
(
Case
A440/2014) [2016] ZAGPPHC 125, Full Bench
[14]
Woodlands
Dairy (Pty) Ltd and Another v Competition Commission
2010 (6) SA 108
(SCA)
[15]
Supra at fn 5