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[2019] ZAGPPHC 175
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Agattu Trading 191 (Pty) Ltd v C.M and Another (A68/2018) [2019] ZAGPPHC 175 (24 May 2019)
SAFLII
Note:
Certain
personal/private details of parties or witnesses have been
redacted from this document in compliance with the law
and
SAFLII
Policy
IN THE HIGH COURT OF SOUTH AFRICA
(GAUTENG DIVISION, PRETORIA)
(1)
REPORTABLE:
NO
(2)
OF
INTEREST TO OTHER JUDGES: NO
(3)
REVISED:
Case
Number: A68/2018
24/5/2019
Agattu
Trading 191 (Pty) Ltd
Applicant
and
C[….]
M[….]
First Respondent
E[….]
S[….] L[….]
Second Respondent
JUDGMENT
COETZEE
AJ
COETZEE
AJ (TEFFO J CONCURRING)
[1]
The parties are referred to as the
appellant or the credit provider, the first respondent as the debt
counsellor and the second
respondent as the consumer.
[2]
The crisp question in this matter is
whether the credit provider in granting a short-term loan to the
consumer acted recklessly.
[3]
The debt counsellor on behalf of
consumer applied in the Magistrates Court ("the application")
for an order:
"That the credit agreement with the
sixth respondent is declared reckless, the force and effect of the
credit agreement are
suspended and that the relevant credit agreement
be settled in accordance with the payment proposal plan."
[4]
The Court a
quo
held that the loan was reckless
because
it was
premised
upon the "hope" that the consumer would be able to obtain a
long-term loan when the short-term loan terminated.
[5]
The appellant appealed against both the
order and the cost order.
THE
FACTS
[6]
The consumer and her then husband
approached Bondpro (the predecessor of the appellant) for a loan.
[7]
They were married in community of
property.
[8]
Once the credit provider had conducted a
credit assessment the parties entered into:
8.1
A bond loan agreement on 7 May 2008 for
a deferred loan amount including deferred interest and acceptance
fees of R269 240 on the
terms and conditions set out there in
("the
initial agreement').
8.2
A renewal credit agreement on or about
31 June 2010 in the amount of R271 200 including an acceptance fee
("the renewal agreement')
[9]
Bondpro, the original credit provider,
ceded the credit agreement to the appellant.
[10]
In terms of the initial agreement, the
consumers had to make twelve monthly payments of R4 394.72 to cover
the interest and costs
and at the expiry of twelve months, repay the
full capital amount of R269 240.
[11]
The purpose of the initial loan was to
consolidate the consumers' debts
("the
debt consolidation")
and to
enable the consumers to have an improved credit record after twelve
months that they could use together with their property
as security
to obtain a long-term loan to settle the initial loan.
[12]
It is the credit provider's business to
provide short-term loans to consolidate debt and to create a good
credit record for the
consumer to be able to obtain long term
relief.
[13]
The affordability study showed that the
financial position of the consumers prior to the debt consolidation
in terms of the initial
loan
was a
net combined disposable income of R8
308.00
[14]
The affordability study showed further
that after the debt consolidation there was an increased net combined
disposable income of
R14 416.28 per month after payment of the
monthly loan instalment of R4 394,72.
[15]
What was in dispute was whether the
consumer was over indebted in respect of repayment of the capital
amount of R269 240 after 12
months.
[16]
The credit grantor when granting the
initial loan relied upon the assets and liabilities, the income and
expenditure and the prospect
of a further loan to be obtained during
or at the expiry of the twelve-month period to enable the consumer
(and her husband) to
repay the capital amount.
[17]
The credit provider contended that when assessing the ability of the
consumer to repay the full
capital amount, one may have regard to the
assets of the consumer. It contemplated that if necessary, the
consumer and her husband
had to dispose of the immovable property in
Atteridgeville to settle the amount due in terms of the credit
agreement if no long-term
loan could be obtained.
[18]
The initial loan contained a provision
that in the event of any default, the credit provider could execute
upon the Atteridgeville
property. The renewal loan, which is dealt
with below, contained a stronger term that if after eight months
after entering into
the loan agreement the consumer had not obtained
a long-term loan, the consumer undertook to put the property onto the
market for
sale to acquire the funds to settle the capital amount.
The
renewal agreement
[19]
Three events occurred during the 12
months after the granting of the initial loan to the consumer.
[20]
The consumer and her husband failed to
pay the initial loan instalments for August and September 2008.
[21]
The consumer and her husband incurred
further debts from the date of the granting of the initial loan to
increase their monthly
liabilities to R22 649.00 per month.
[22]
They failed to obtain a long-term loan
from a major financial institution when the capital amount fell due.
The credit provider
assisted them to apply for the loan.
[23]
The credit provider assisted the
consumer who agreed with the credit provider to extend the repayment
term for another twelve months.
They entered into a renewal agreement
(the renewal loan) on 31 June 2010.
[24]
By this time the consumer and her
husband were divorced, and the property was transferred to the
consumer.
[25]
The consumer and her husband entered
into a
renewal
loan,
other than what is alleged in the consumer's replying affidavit that
a
further
loan
was entered into.
[26]
The terms of the renewal agreement were
similar to that of the initial agreement in that the monthly payment
would cover the interest
and costs and that the capital amount was
repayable at the expiry of twelve months.
[27]
In terms of the renewal agreement, the
loan amount was increased to R326 860 to cover the arrears, interest
and finance charges.
[28]
The renewal loan that replaced the
initial loan left the consumers with an ultimate debt of R326 860.00.
The bond remained in place
as security for payment.
[29]
The financial position of the consumers
for purposes of the renewal agreement was that their net combined
disposable income prior
to the debt consolidation was R5 036.00 per
month and after the debt consolidation R4061.00. This was after
providing for the new
bond repayment of R4502.00 per month.
[30]
The renewal agreement, which was the
specific subject matter of the application in the Court
a
quo,
contained the specific clause
that if after eight months of signature of the agreement, the
consumer and her ex-husband were unable
to obtain a long-term loan,
they would within the next four months sell the bonded property to
obtain the funds to liquidate the
loan.
[31]
The purposes of the renewal agreement
were therefore somewhat different from those of the initial
agreement. The reasons were:
31.1
The considerations were to deal
primarily with the consumers' default (not because of the initial
agreement, but due to their own
conduct in incurring substantial
additional debt after the conclusion of the initial agreement;)
31.2
Dealing with the resultant risk caused
solely by the subsequent
conduct of the consumers that had placed their
property in jeopardy by no fault of the credit provider. The initial
agreement had
to be extended to assist them to dispose of the
property.
31.3
The additional liabilities incurred by
the consumers after concluding the initial agreement exposed them to
a liability of more
than threefold that of the remaining monthly debt
obligations after the debt consolidation.
[32]
The consumer and her ex-husband fell in
arrears in respect of the renewal loan and the consumer on 1 December
2013 applied for a
debt review.
[33] The debt
counsellor undertook a debt review.
[34]
The debt counsellor applied to the Court
a
quo
to
make a finding that the consumer was over indebted. The Court
a
quo
ruled that that application had
to await the outcome of the subsequent application to declare the
initial and renewal loans reckless.
The application to declare her
over indebted is still pending.
The
pleaded cause of action in the Court a
quo
[35]
In the founding affidavit the debt
counsellor on behalf of the consumer pleaded the cause of action as
follows:
"4.8 It would appear as if the 3rd
respondent has failed to comply with its duties under the National
Credit Act and that the
credit agreement was granted recklessly. The
fact that the consumer and the husband did not qualify for a loan
with a major financial
institution to settle the 12
th
instalment and final instalment of the first loan agreement is
indicative thereof that they would not have qualified for
a
loan to settle the final instalment
of the second credit agreement i.e. the renewal agreement of June
2012."
[36]
The debt counsellor on behalf of the
consumer in the replying affidavit amplified the cause of action as
follows:
"2.5
The second respondent's failure to
take into consideration whether the consumer was able to afford the
final of R250 000 within
a
year of the granting of the loan is
tantamount thereto that the second Respondent did not do
a
credit
assessment prior to the granting of the loan.
"(own
emphasis).
[37]
The credit provider opposed the
application on the basis that proper credit assessments were done and
that the granting of credit
was not reckless.
Reckless credit
-
the legal framework
[38]
The National Credit Act ("the Act"
provides as follows:
"80 Reckless credit
(1)
A credit agreement is reckless
if, at the time that the agreement
was
made
...
-
(a)
-;
or
(b)
the credit provider,
having conducted an assessment as required by section 81 (2), entered
into the credit agreement with the consumer
despite the fact that the
preponderance of information available to the credit provider
indicated that-
(i)
-;
or
(ii)
entering into that credit
agreement would make the consumer over-indebted.
(2)
When
a
determination is to be made whether
a
credit agreement is reckless or not,
the person making that determination must apply the criteria set out
in subsection (1) as they
existed at the time the agreement was made,
and without regard for the ability of the consumer to-
(a)
meet the obligations under
that credit agreement; or
(b)
understand or appreciate
the risks, costs and obligations under the proposed credit agreement,
at the time the determination is being made.
[39]
Regard must be had also to the section
dealing with over indebtedness:
"79. Over-indebtedness.
-
(1)
A consumer is over-indebted if
the preponderance of available information at the time a
determination is made indicates that the
particular consumer is or
will be unable to satisfy in a timely manner all the obligations
under all the credit agreements to which
the consumer is
a
party, having regard to that
consumer's-
(a)financial means, prospects and
obligations; and
(b) probable propensity to satisfy in
a
timely manner all the obligations
under all the credit agreements to which the consumer is
a
party, as indicated by the consumer's
history of debt repayment.
(2)
When
a
determination is to be made whether
a
consumer is over-indebted or not, the
person making that determination must apply the criteria set out in
subsection (1) as they
exist at the time the determination is being
made.
[40]
The section dealing with reckless credit
requires the following:
"81 Prevention of reckless credit
(1)
(2)
A
credit
provider must not enter into
a
credit agreement without first taking
reasonable steps to assess-
(a)
the proposed consumer's
(i)
-;
(ii)
debt re-payment history as
a
consumer under credit agreements;
(iii)
existing financial means,
prospects and obligations;”
[41]
It is common cause that when the initial
and renewal agreements were entered into regulation 23A was not yet
operative. It now reads
as follows:
“…. a
debt counsellor, when
assessing the consumer's application for
a
debt review, must
refer to section 79 and further consider the following:
“
(a)
A
consumer is over-indebted if his I
her total monthly debt payments exceed the balance derived by
deducting his I her minimum living
expenses from his I her net
income.
(b)
Net income is calculated
by deducting from the gross income, statutory deductions and other
deductions that are made as
a
condition of employment;
(c)
Minimum living expenses
are based upon
a
budget
provided by the consumer, adjusted by the debt counsellor with
reference to guidelines issued by the National Credit Regulator.”
[8]
A
party
(the consumer) who raises
a
defence
of over-indebtedness must plead and prove the defence, which includes
proving that he is over-indebted as envisaged in section
79 of the
NGA.”
[42]
The credit provider maintains that it in
any event complied with the requirements of the regulation.
The findings and the reasoning of the Court
a quo
[43] On 23
November 2017 the magistrate granted the application in terms of the
notice of motion with
costs on an attorney and client scale.
[44]
The main finding of the magistrate was
that there was a question as to:
"...
did the respondent proceed to
assess the value of the applicants' assets and liabilities? There is
no evidence before
me
suggesting that an assessment of the
value of the assets and liabilities of the applicant was done
therefore the advance of credit
by respondent applicant, rendered the
applicant over indebted, taking into account the income generated and
proven by way of salary
advices of both applicants.
"
[45]
The Court a
quo
relied upon
ASSA
Bank Ltd v De Beer and Others
[1]
where the Court held that it was
beyond reason to have concluded that the farming operation for which
the moneys were lent and advanced
may prove to be successful and
hence the agreement would be declared reckless.
[46]
The Court a
quo
further held that upon renewal of
the loan, it should have been clear that the consumer did not get the
approval when the initial
loan expired but still the credit provider
proceeded to advance the renewal loan.
[47]
The Court
a
quo
held that a credit assessment
was in fact done by the credit provider before approving a loan. The
appellant did not appeal this
finding.
Analysis
[48]
The debt counsellor in the application
relied upon the following grounds for the alleged reckless granting
of credit:
48.1
Neither the consumer or her husband was
able to afford the final capital payment after twelve months. The
consumer would remain
perpetually indebted to the credit provider.
48.2
The credit provider was not entitled to
rely upon a liquidation of assets to meet the repayment obligation
after 12 months.
48.3
The credit provider was unable to raise
a long-term bond to acquire capital to liquidate its own loan. The
consumers did not qualify
for a long-term bond with a major financial
institution when they entered into the initial loan agreement. Such a
long-term bond
after 12 months was an uncertain event and could not
be considered as income.
[49] The credit
provider had to assess "the existing financial means, prospects
and obligations"
of the consumer before extending credit.
[50] The Court
a
quo
held that the credit provider in fact carried out a credit
assessment but in effect held that the assessment was inadequate in
that
there was no valuation of the assets of the consumer.
[51] The credit
provider submitted that, as pleaded, the consumer relied upon a
contravention of section
80(1)(a) in that no credit assessment was
done. In the absence thereof, the loan was reckless. The finding of
the Court
a quo
was that the assessment lacked a valuation of
the assets of the consumer and thus the assessment was not in
compliance with section
80(1)(a).
[52] This
prompted the appellant shortly before the hearing of the appeal to
launch an urgent application
for leave at the hearing of the appeal
to adduce new evidence. The application was opposed. The parties
agreed to submit the evidence
alluded to by the appellant in the
application with the leave of the Court. The evidence comprised three
valuations of the Atteridgeville
property done at various dates. The
parties agreed that the valuations were what they purported to be.
[53] Having
regard to the cause of action as pleaded by the consumer and
amplified in her replying
affidavit, she attempted to place before
the Court
a quo
a case based upon section 80(1)(a), that is,
that the credit provider did not conduct a credit assessment, or at
least did not conduct
an assessment in accordance with section 79.
[54]
The consumer challenged the evidential
value of the valuations by pointing to different sizes of the
property and different values
having been arrived at. The criticism
missed the point as the Court
a quo
held that there were no valuations.
This judgment deals below with the evidence relating to the value of
the property in the absence
of the valuations themselves. Having held
that an assessment had been done save for considering the value of
the property, the
finding stands to be set aside in the light of the
valuations now placed before Court.
[55]
The credit provider submits that, apart
from the valuations introduced in evidence, the Court a
quo
erred in finding that there was no
evidence before the Court suggesting that no assessment was done in
respect of the value of the
assets, in particular the immovable
property. The valuations now entered into evidence confirmed what was
already before the Court
a
quo.
[56]
The evidence of the value of the
property before the Court
a quo
in
any event was that:
56.1
The property formed part of the joint
estate of the consumer and her husband;
56.2
In terms of the initial agreement they
accepted and acknowledged that the minimum replacement value of the
property was R676 962.00;
56.3
The parties agreed for the purposes of
the Pre-Agreement Statements and Quotations, depending on the
particular date of assessment,
on more conservative market values
respectively of R480 000.00 and R550 000.00;
56.4
All parties concerned seem to have
reasonably relied upon the above values as being correct and there is
no evidence to suggest
that these values were in fact incorrect at
the material times that they were agreed. There is no evidence to
suggest that the
values were unreliable or prejudicial in any way
whatsoever;
56.5
The consumer and her husband did not
take issue with any of the values or that they have been included in
the assessments.
56.6
The credit provider accepted the
property as sufficient for purposes of a covering mortgage bond;
56.7
The consumer did not in the founding
affidavit attack the value of the property or make out a case that
the property was not valued
and that this was the cause of any over
indebtedness. The consumer simply never pleaded it. The criticism of
the consumer of the
valuations has no merit.
[57]
The only reasonable inference to be
drawn is that the credit provider was reasonably satisfied by
information that it had in hand
during its affordability assessment
that the value of the property rendered adequate security to cover
the obligations of the second
respondent and her ex-husband in the
event of their default under the initial agreement or the renewal
agreement.
[58]
The appellant contended that once the
Court should have concluded that a proper credit assessment was done,
the consumer had to
plead and prove an over indebtedness to show that
the loan was granted recklessly. The submission is that the consumer
did not
plead or prove this. This submission is correct.
[59]
It is also correct that because the
application to declare the consumer over indebted was still pending
when the application to
declare the loan reckless was heard, the
Court
a quo
was
not in a position to make a finding in respect of over indebtedness.
[60]
The main contention of the consumer was
that the final payment in terms of the renewal loan was unaffordable
and therefor the loan
was reckless. The consumer's submission is that
the prospect of the consumer at the expiry of the initial loan to
obtain a long-term
loan from a financial institution was nothing more
than a "hope" and certainly not a reasonable prospect as
required
by the Act.
[61]
The appellant contended that it acted
reasonably in having had regard to the financial means, prospects and
obligations of the consumer
at the time of granting the loan. The
prospect of the consumer to obtain a loan to service the final
payment was a reasonable prospect.
It was not a mere "hope"
as the Court
a quo
held.
What jeopardized the repayment of the loan was
the reckless conduct of the consumer in incurring substantial
additional debt and
failing to keep up the loan repayments after the
granting of the initial loan.
[62]
The consumer acted against the aims of
the Act when she incurred substantial additional debt after entering
into the initial loan.
She did not act responsibly as the Court
required of her in
Kubyana v
Standard Bank of South Africa Ltd
[2]
where the Constitutional Court
held:
"One of the main aims of the [National
Credit Act] is to enable previously marginalised people to enter the
credit market and
access much-needed credit. Credit is an invaluable
tool in our economy. It must, however, be used wisely, ethically and
responsibly.
Just as these
obligations of ethical and responsible behaviour applied to providers
of credit. so to the consumers
.
·
own emphasis)
[63]
The credit provider acted reasonably in
considering the consumer's financial means, prospects and
liabilities. It was entitled to
take into account the prospect of the
consumer to obtain a long-term loan provided she complied with the
debt consolidation and
payment of the monthly instalments. With an
improved debt record and the security of the property she would be
able to obtain a
long-term loan. If not, the property could still be
sold.
[64]
The consumer's submission that the
credit provider should not have had regard to the asset as it merely
served as security for the
loan cannot be correct.
[65]
Such a submission is not supported by
the facts.
65.1
Firstly, the renewal agreement contained
a provision that specifically required the consumers to sell the
property after eight months
if they were unable to obtain a long-term
loan. The parties clearly contemplated the selling of the fixed
property.
65.2
In the assessment the credit provider
may have regard to the selling of assets to meet the loan as was held
in
Standard Bank of SA v
Panayiotts
[3]
where the Court held that in the
assessment the credit provider may have regard to the selling of
assets to meet the loan obligation:
"[8]
A party (the consumer) that raises
a
defence of over indebtedness must
plead and prove the defence, which includes proving that he is over
indebted as envisaged in section
79 of the NGA.
[9] Having regard to the wording of section
79, such proof must inevitably involve details of, inter-alia, the
consumer's financial
means, prospects and obligations. Financial
means would include not only income and expenses, but also
assets
and liabilities. Prospects would
include the prospects of improving the consumer's financial position,
such
as
increases,
and even, liquidating
assets.
[10] In the
case
of an instalment agreement, secured
loan, lease or mortgage agreement (all of which involves goods
as
the subject matter of the
agreement,)the consumer's financial means and prospects must include
the prospect of selling the goods
in order to reduce the consumer's
indebtedness.
"
65.3
The Court in
SA
Taxi Securitisation (Pty) Ltd
&
others v Mbatha; SA Taxi
Securitisation (Pty) Ltd v Molete; SA Taxi Securitisation (Pty) Ltd v
Makhoba
[4]
held that in the case of a
credit agreement relating to a taxi which served as security for
repayment of the loan, the consumer
cannot retain the vehicle and
claim relief in the form of a reckless loan. The vehicle must be
surrendered. The same applies in
this case. There is no reason why
the consumer should retain the security but be relieved of the
obligation to timeously surrender
it for sale.
[66] There is no
merit in the submission of the consumer that the sale of the fixed
property should
have been included in the "Income" section
of the assessment failing which the credit provider cannot rely on it
as part
of the credit assessment having regard to the financial
means, prospects and obligations of the consumer. Nothing turns on
where
the information was recorded, provided the credit provider has
correctly considered the information.
[67] The Court
a
quo
erred in finding the initial agreement and the renewal
agreement reckless. The Court a
quo
failed to have regard to
the purpose of the initial agreement to consolidate the debt and to
provide the consumer with an improved
credit record. With an improved
credit record and the property as security, she would have been able
to obtain long-term finance
to get out of debt.
[68]
When the credit provider considered the
prospect that the consumer would qualify for long-term credit after
twelve months it was
not relying upon a "hope" as the Court
a
quo
found
but on a reasonable prospect.
[69]
The Court a
quo
also erred in finding that the
credit provider extended further (reckless) credit in terms of the
renewal agreement. The renewal
agreement merely extended the period
in which the consumer had to repay the capital amount and to provide
the consumer with an
opportunity to sell the property if no long-term
finance could be obtained.
[70]
The Court a
quo
erred in finding that the consumer
had made out a case for reckless lending. The cause of action as
pleaded related to section 80(1)(a)
that no assessment was done and
not 80(1)(b)(ii) that relates to credit resulting in over
indebtedness.
[71]
The appeal succeeds.
[72]
It is ordered that:
72.1
The order of the Court
a
quo
is set aside and is substituted
by an order dismissing the application with costs
72.2
The second respondent pays the costs of
the appeal which costs include the costs of the urgent application.
COETZEE
AJ
ACTING
JUDGE OF THE HIGH COURT
I agree
TEFFO J
JUDGE OF THE HIGH COURT
I agree
It
is so ordered
APPEARANCES
On
behalf of Appellant
:
Adv. PG Nel
Instructed by
:
Koegelenberg Attorneys
On
behalf of Second Respondent
: F Greeff of Greeff
& Van
Wyk Attorneys
Date
of Hearing
: 2 May 2019
Date
of Judgment
: 24 May 2019
[1]
2016 (3) SA 432 (GP)
[2]
2014 (3) SA 56 (CC)
[3]
2009 JOL 23095
(GP) paras 8-19
[4]
2011 (1) SA 310
(GSJ)