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[2018] ZASCA 143
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Du Bruyn NO and Others v Karsten (929/2017) [2018] ZASCA 143; 2019 (1) SA 403 (SCA) (28 September 2018)
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THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case
No: 929/2017
In
the matter between:
M DU
BRUYN
NO
FIRST
APPELLANT
[In
his capacity as a co-trustee of the DBF Trust]
S.J.C.
DU BRUYN
N.O.
SECOND
APPELLANT
[In
his capacity as co-trustee of the DBF Trust]
MATHYS
DU
BRUYN
THIRD
APPELLANT
S.J.C.
DU BRUYN
N.O
FOURTH
APPELLANT
M DU
BRUYN
NO
FITH
APPELLANT
[In
his capacity as co-trustee of the Vaal Steam
Supplies
Black Empowerment Trust]
and
ANDREAS STEFANUS JACOBUS
KARSTEN
RESPONDENT
Neutral
citation:
Du Bruyn NO & others v
Karsten
(929/2017)
[2018] ZASCA 143
(28
September 2018)
Coram:
Shongwe ADP, Makgoka, Schippers JJA and
Mokgohloa and Nicholls AJJA
Heard:
3 September 2018
Delivered:
28 September 2018
Summary
:
National
Credit Act 34 of 2005
- under what circumstances is a credit provider
obliged to register – where the credit agreement exceeds the
threshold set
out in
s 42(1)
- irrespective of whether it is a single
transaction - irrespective of whether the credit provider is a
regular participant in
the credit industry
ORDER
On
appeal from:
the Gauteng Division,
Pretoria (Mavundla J sitting as court of first instance):
1 The appeal succeeds with no order as to costs.
2 The order of the court a quo is set aside and substituted with the
following:
‘
(a)
The application is dismissed with costs.
(b)
The agreements attached to the founding affidavit in the court a quo
as annexures JK5, JK6 and JK7 are declared to be unlawful
due to
non compliance with
s 40(1)
of the
National Credit Act (Act
34
of 2005) before the amendment thereof by the National Credit
Amendment Act (Act 19 of 2004)’.
JUDGMENT
Nicholls
AJA (Shongwe ADP, Makgoka, Schippers JJA and Mokgohloa AJA
concurring):
[1]
That the National Credit Act 34 of 2005 (the NCA) is not a model of
clarity, has been bemoaned by the High Court, this Court
and the
Constitutional Court on a number of occasions. This appeal is yet
another example of the inconsistencies and resultant
confusion to
which the NCA has given rise. The pertinent question in this matter
is under what circumstances is registration as
a credit provider in
terms of the NCA obligatory.
[2]
Mr Du Bruyn and his wife are an elderly couple, married in community
of property. They are the appellants herein. Mr Du Bruyn’s
business is the sealing of industrial leaks. He first set up his
business in 1984 which resulted in the formation of three
interrelated
entities: Vaal Steam Supplies (Pty) Ltd (Vaal Steam);
Naisa Trading CC (Naisa) and Lekoa Steam & Environment (Pty) Ltd
(Lekoa
Steam). There is some dispute as to the precise role of each
entity but nothing turns on this.
[3]
The respondent, Mr Karsten, was like a son to the Du Bruyns. He holds
an LLB degree, is a lecturer at the Vaal University of
Technology and
is a municipal councillor. He describes himself as a businessman. In
the early 2000’s Mr Du Bruyn introduced
Mr Karsten into
the business with a view to him one day taking over the business.
Under Mr Du Bruyn’s patronage and
pupillage Mr Karsten
gradually became more involved with the businesses until he was
appointed as the technical director in 2008.
Eventually MrKarsten
held a substantial number of shares in both companies and 50%
member’s interest in the close corporation,
Naisa.
[4]
In 2012 there was a falling out between Mr Du Bruyn and Mr Karsten
over operational issues in the business. This led to a decision
that
they should part ways. By this stage both Mr and Mrs Du Bruyn were in
their mid 70’s and were looking forward to their
retirement.
Their initial proposal was that Mr Karsten purchase Mr Du Bruyn’s
interest in all the entities. A price of R2
500 000.00 was set and an
option agreement concluded, valid until 1 March 2013. However, Mr
Karsten was unable to obtain the necessary
finance, even after having
been afforded a further 6 weeks in which to raise the money.
[5]
Mr Du Bruyn then made an offer to purchase Mr Karsten’s
interest in all three entities for the price of R2 000 000.00.
A cash
offer of R1 500 000.00 was rejected by Mr Karsten. The offer of
R2 000 000.00 to be paid in instalments was subsequently
re instated.
Pursuant thereto separate sale agreements in respect of the three
entities were drawn up. In Naisa and Vaal Steam
Mr Karsten sold his
shares and loan account to the DBF Trust, of which Mr and Mrs Du
Bruyn are beneficiaries. In Lekoa Steam the
purchaser was Vaal Steam
Black Empowerment Trust and Marius Fouche. Mr Du Bruyn and Mr Karsten
were the trustees of the latter
trust.
[6]
The three sale agreements are, to all intents and purposes,
identical, apart from the purchaser who is different in Lekoa Steam.
They were all signed on 26 April 2013. The amount payable for the
shares in the different entities differs but in total they amount
to
R2 000 000.00. An addendum to each agreement dealt with all three
entities and the purchase price recorded was of the globular
amount
of R2 000 000.00. The same terms of payment were applicable to all
three agreements of sale: a deposit of R500 000 was to
be paid by 1
May 2013; thereafter instalments of R30 000 to be paid on a monthly
basis, subject to an identical amortisation table
for a period of 5
years; and interest to be levied on the deferred amount. In all three
sale agreements Mr and Mrs Du Bruyn bound
themselves as sureties and
co-principal debtors. In clause 8 of each addendum, Mr and Mrs Du
Bruyn undertook to register a covering
bond over their immoveable
property, Unit 2, Shannon Close, Erf 196, Drie Riviere, within 60
days, which they guaranteed to be
unencumbered.
[7]
There was much debate over whether the three agreements of sale
amounted to a single credit facility or were three self-standing
credit agreements. In view of the approach I take in this matter,
this distinction is irrelevant.
[8]
It is common cause that Mr Karsten was not registered as a credit
provider in accordance with s 40 of the NCA at the date of
the
conclusion of the agreements of sale on 26 April 2013. Mr Karsten
accepted that he had to be registered as a credit provider
in order
to facilitate the registration of the covering bond. He therefore
made an application to be registered as such on 22 October
2012 and
his registration occurred on 27 November 2013. The Du Bruyns did not
register the covering bond within 60 days but eventually
effected
registration of the covering bond in early 2014.
[9]
By 1 May 2013 Mr and Mrs Du Bruyn had taken full control of the
businesses which they managed for their own benefit. The businesses
started to decline. The deterioration continued to such an extent
that Mr and Mrs Du Bruyn were compelled to dispose of personal
assets
to keep the businesses afloat. In addition the DBF Trust sold the
interest it acquired in Naisa and Lekoa Steam from Mr
Karsten in
terms of the agreements of sale before paying him the full purchase
price. An immoveable property owned by Vaal Steam
was sold for an
undisclosed amount.
[10]
The appellants defaulted on the instalment payments. As of 1
September 2014 Mr Karsten had received only the amount of
R866
830.61. In November 2014 Mr Karsten instituted proceedings for
the balance of the purchase price, the sum of R1 133 169.39.
He
alleged a breach of the agreements of sale. The Du Bruyns’
defence was that the agreements are null and void due to
non-compliance
with the NCA.
[11]
It was first communicated by the Du Bruyns through their attorneys,
on 3 September 2014, that the agreements of sale constituted
agreements as contemplated by s 8 of the NCA. Accordingly, it was
contended that Mr Karsten was obliged to have been registered
as a
credit provider at the time the agreements were concluded on 26 April
2013. His subsequent registration on 27 November 2013
was
insufficient. The non-compliance of ss 40(3) and 40(4) of the NCA
rendered the agreements, as well as the mortgage bond registration
and the suretyship undertakings, so it was argued, unlawful and void.
[12]
The court a quo (per Mavundla J) granted judgment in the amount of R1
133 169.39 plus interest from 1 September 2014. However,
he expressly
stated that in his view the agreements fell within the purview of the
NCA. This obliged Mr Karsten to register as
a credit provider by the
time the agreement were concluded in April 2013. But for the decision
of the full court of that division
in
Friend
v Sendal (Friend),
[1]
to which Mavundla J was bound, he would have found
that Mr Karsten’s failure to register as a credit provider at
the time
of concluding the agreements, rendered them null and void.
The alternative defence of reckless lending was dismissed.
Unsurprisingly,
Mavundla J granted leave to appeal to this court.
[13]
Before this court two arguments were advanced on behalf of by Mr
Karsten. Firstly, it was submitted that the sales agreements
were not
arms-length transactions and secondly, that the ratio in
Friend
was applicable in that the requirement
to register was directed at the participants in the credit market,
not the likes of Mr Karsten.
It was not disputed that a finding that
Mr Karsten was obliged to have been registered as a credit provider
at the time the agreements
were concluded, would render them null and
void.
[2]
The consequences thereof have been settled by the
Constitutional Court and a counter claim by the appellants for
repayment of the
R866 830.61 already paid to Mr Karsten was abandoned
in light of the Constitutional Court’s decision in
Chevron
SA (Pty) Ltd v Wilson t/a Wilson Transport.
[3]
[14] Were the agreements of sale arms-length transactions? Section
4(1) states that the NCA shall apply to every credit agreement
where
the parties are dealing with each other at arm’s length.
Section 4(2)
(b)
sets out the circumstances in which the
parties are not dealing at arm’s length. Section
4(2)
(b)
(iv)
(aa),
in relevant part, reads as follows:
(b)
in
any of the following arrangements, the parties are not dealing at
arm’s length:
. . . .
(iv) any other arrangement –
(aa) in which
each party is not independent of the other and consequently does not
necessarily strive to obtain the utmost possible
advantage out of the
transaction’
[15]
It was argued that because of the almost familial relationship
between Mr Karsten and the Du Bruyns there was no attempt by
Mr
Karsten to get the utmost advantage out of the transaction. The sale
was not on the open market but within the context of a
family
business. This is said to be evidenced by the negotiations where
first Mr Karsten was going to buy the Du Bruyns’
interest and
thereafter when the allegorical son could not pay, the father figure
stepped in. So, too, is the special relationship
said to be shown, by
the agreement to pay by instalments at a nominal interest rate of 5%.
[16]
This puts a slant on the facts which is not justified by the
evidence. When it became apparent that Mr Karsten was unable to
procure the necessary finance, Mr Du Bruyn then had no choice but to
buy out Mr Karsten. Mr Du Bruyn undertook to get a valuation
of his
interest in the businesses in order to determine a fair price. This
fact alone flies in the face of a suggestion of a special
family
price. Mr Du Bruyn first offered to purchase Mr Karsten’s
shares for R2 000 000 and then reduced the price to R1 500
000 When
this was rejected the previous offer was re-instated. Both parties
instructed their respective attorneys, through whom
the negotiations
were conducted.
[17]
The evidence reveals that far from being a familial arrangement, the
relations between Mr Karsten and Mr Du Bruyn soured once
they parted
ways and, in fact, were positively hostile in the weeks leading up to
the signing of the sale agreements. Mr Karsten,
through his
attorneys, in a letter dated 12 April 2013 commented on the breakdown
of trust between them and indicated that if Mr
Du Bruyn would not
purchase his shares he would sell them on the open market, failing
which he threatened to apply for the liquidation
of the businesses.
These can hardly be described as the actions of someone who was not
acting independently and who was not trying
to gain the utmost
advantage of the situation. Mr Du Bruyn responded, through his
attorneys on 16 April 2013, confirming that the
relationship had
irretrievably broken down. The evidence emphatically shows that the
sale agreements were arms-length transactions,
thus falling within
the ambit of the NCA.
[18]
The real issue in this appeal is whether the full court in
Friend
was correct in finding that that the NCA was directed only at those
in the credit industry and did not apply to single transactions
where
credit was provided, irrespective of the amount involved. The court
in
Friend
para 28 held that notwithstanding the fact an agreement may be a
credit agreement in terms of the NCA, this did not necessarily
mean
that the credit provider was obliged to register in terms of s
40(1)
(b)
.
For this interpretation the full court relied on the purpose of the
NCA, set out in s 3 which is, ‘to promote and advance
the
social and economic welfare of South Africans’ in order to
achieve ‘a fair, transparent, competitive, sustainable,
responsible, efficient, effective and accessible credit market and
industry, and to protect consumers’. Bearing this in mind
the
court found that the provisions of the NCA were meant to regulate
those participating in the credit industry and persons who
frequently
provide credit, and was not applicable to once-off transactions.
[19]
The court a quo’s stance was further complicated by a number of
decisions in the same division which held that
Friend
had been wrongly decided. In
Van
Heerden v Nolte
[4]
the court found that the ratio decidendi in
Friend
was inconsistent with the approach
taken by the Constitutional Court in
National
Credit Regulator v Opperman & others
.
[5]
Similarly,
Potgieter
v Olivier & another,
[6]
although the court held that it was bound by
Friend
, it
differed with the finding therein on the grounds that the tenets of
interpretation of statutes do not permit such a meaning.
[7]
[20] There can be no doubt that the approach adopted in
Friend
is pragmatic and makes good sense. However, it is difficult to marry
this interpretation with the unambiguous text of the NCA.
Section 40
of the NCA sets out the circumstances under which registration as a
credit provider is applicable. The section, in relevant
part,
provides that:
(1)
A
person must apply as a credit provider if–
(a)
that
person, alone or in conjunction with any associated persons, is the
credit
provider of at least 100 credit
agreements, other than incidental credit agreements;
(b)
the
total principle debt owed to that credit provider under all the
outstanding
agreements, other than
incidental credit agreements, exceeds the threshold prescribed in
terms of section 42(1).
(2)
In
determining whether a person is required to register as a credit
provider –
. . . .
(3)
A
person who is required in terms of subsection (1) to be registered as
a credit provider, but who is not so registered, must not
offer, make
available or extend credit, enter into a credit agreement or agree to
do any of those things.
(4)
A
credit agreement entered into by a credit provider who is required to
be registered in terms of subsection (1) but who is not
so registered
is an unlawful agreement and void to the extent provided for in
section 89.’
[21] Section 40(1) was amended by Act 19 of 2014 to delete any
reference to 100 credit agreements. It now reads as follows:
‘
A
person must apply to be registered as a credit provider if the total
principal debt owed to that credit provider under all outstanding
credit agreements, other than incidental credit agreements, exceeds
the threshold prescribed in terms of s 42 (1).’
Therefore
the amount of credit provided that is now the sole determining factor
to ascertain whether a credit provider is obliged
to register.
[22]
It must be mentioned that the circumstances under which registration
as a credit provider is necessary was not dealt with by
the
Constitutional Court in
Opperman
.
The issue in that case was the constitutionality of s 89(5)
(c)
of the NCA which at the time provided that the rights of a credit
provider to recover the money paid in term of an unlawful credit
agreement, would be cancelled or, in terms of s 85(5)
(c)
(ii),
be forfeited to the State. The Constitutional Court found that s
89(5)
(c),
by denying the credit provider the right to restitution, and denying
the court the right to make an order that is just and equitable,
amounted to the arbitrary deprivation of property. This lack of
discretion of the court was a breach of s 25 of the Constitution,
and
could not be justified as a reasonable and justifiable limitation.
The section was thus held to be invalid.
[23]
The registration of credit providers was dealt by both the trial
court
[8]
in
Opperman
and
the Constitutional Court only to the following extent. The trial
court merely stated that having regard to the amount involved,
‘it
follows that the applicant was required by statutory provisions to
have applied for registration as a credit provider.’
[9]
The Constitutional Court merely narrated, without
comment, the facts set out in the trial court’s judgment that
the credit
provider was not registered as a credit provider as
required by the NCA at the time of providing the loan to his
friend.
[10]
In neither matter was the issue of when a credit
provider is obliged to register canvassed. The decision of the
Constitutional Court
cannot, in these circumstances, amount to an
implied overruling of
Friend
.
It does, however, suggest that the Constitutional Court accepted this
to be the correct position without further interrogation.
.
[24]
Insofar as it is contended that this court has decided that once-off
transactions do not fall within the ambit of the NCA in
Shaw
& another v Mackintosh & another
[11]
this proposition, too, is incorrect. In
Shaw
the appellants had bound themselves as
sureties in favour of the first respondent for the debts of the
second respondent. The real
dispute in
Shaw
was whether the agreement in question was a credit guarantee in terms
of s 8(5) or a credit transaction in terms of s 8(4)
(f)
.
If the agreement was the former the NCA was not applicable, but if
the agreement was the latter then it fell within the ambit
of the
NCA. It was found to be neither. This court held that the appellants,
as sureties, were not granted any loan nor was any
credit advanced to
them. In an obiter remark, this court said that the first respondent
was not a credit provider – he was
not in the business of
granting credit. This comment had no significant bearing on the
outcome of the case. There was no interpretation
of s 40(1) and no
reference to
Friend
.
In my view
Shaw
cannot be said to be authority on the requirements of registration of
a credit provider.
[25] This court is enjoined to ascertain the correct interpretation
of s 40(1). The approach to interpretation of statutes has
been
clarified by this court in
Natal Joint Municipal Pension Fund v
Endumeni Municipality
as follows:
‘
The
present state of the law can be expressed as follows. Interpretation
is the process of attributing meaning to the words used
in a
document, be it legislation, some other statutory instrument, or
contract, having regard to the context provided by reading
the
particular provision or provisions in the light of the document as a
whole and the circumstances attendant upon its coming
into existence.
Whatever the nature of the document, consideration must be given
to the language used in the light of the
ordinary rules of grammar
and syntax; the context in which the provision appears; the apparent
purpose to which it is directed
and the material known to those
responsible for its production. Where more than one meaning is
possible each possibility must be
weighed in the light of all these
factors. The process is objective, not subjective. A sensible meaning
is to be preferred
to one that leads to insensible or unbusinesslike
results or undermines the apparent purpose of the document. Judges
must be alert
to, and guard against, the temptation to substitute
what they regard as reasonable, sensible or businesslike for the
words actually
used. To do so in regard to a statute or statutory
instrument is to cross the divide between interpretation and
legislation.
In a contractual context it is to make a contract for
the parties other than the one they in fact made. The “inevitable
point
of departure is the language of the provision itself”, read
in context and having regard to the purpose of the provision
and the
background to the preparation and production of the
document.’
[12]
(Footnotes
omitted).
[26]
A plain reading of s 40(1)
(b)
makes it clear that a person must register as a credit provider if
the total principal debt exceeds the prescribed threshold in
terms of
s 42(1). At the time this section provided that the Minister must, at
intervals of not more than five years, determine
an applicable
threshold of not less than R500 000, for the purpose of determining
whether a credit provider is required to register
in terms of s
40(1).
[13]
There is no dispute that R500 000 was the
applicable threshold at the conclusion of the sales agreements.
[14]
[27]
While it may be reasonable, and indeed eminently sensible, to
interpret s 40 as being inapplicable to once-off transactions
where
the role players are not participants in the credit market, it is
difficult to reconcile this interpretation with the language
of the
provision, its context and purpose. The legislature has set
thresholds that trigger the obligation to register where a single
transaction is in excess of the prescribed amount. To conclude that
this does not apply to once-off transactions or to those who
are not
regular participants in the credit market, is, however attractive and
sensible it may sound, not being true to the text
and the context of
the statute. As stated in
Potgieter,
to
find otherwise would be to substitute what is justifiably seen as
regulatory overreach with judicial overreach.
[15]
Lamenting the dismal drafting of the NCA, the
Constitutional Court suggested that we accept the words of the
provision of the statute,
acknowledge the drafting error and leave it
to parliament to correct.
[16]
[28]
In summary the only conclusion to be drawn is that the requirement to
register as a credit provider is applicable to all credit
agreements
once the prescribed threshold is reached, irrespective of whether the
credit provider is involved in the credit industry
and irrespective
of whether the credit agreement is a once-off transaction. That is an
imperfect solution is readily accepted,
but it is for the legislature
to remedy, rather than for the courts to attempt to accommodate
deficient drafting by attributing
a meaning to s 40(1)
(b)
that is not justified by the wording of the statute.
[29]
It should be noted that the parties agreed that there should be no
order as to costs.
[30] In the result I make the following order:
1 The appeal succeeds with no order as to costs.
2 The order of the court a quo is set aside and substituted with the
following:
‘
(a)
The application is dismissed with costs.
(b)
The agreements attached to the founding affidavit in the court a quo
as annexures JK5, JK6 and JK7 are declared to be unlawful
due to
non compliance with
s 40(1)
of the
National Credit Act (Act
34
of 2005) before the amendment thereof by the National Credit
Amendment Act (Act 19 of 2004)’.
_________________
C H Nicholls
Acting
Judge of Appeal
APPEARANCES:
For the
Appellants: J J Botha
Instructed
by: Venter & Volsheck Inc, Pretoria
Bezuidenhouts
Inc, Bloemfontein
For the
Respondent: P G Leeuwner
Instructed
by: Fouche Attorneys, Pretoria
Symington
De Kok Inc, Bloemfontein
[1]
Friend v Sendal
2015 (1) SA 395 (GP)
[2]
See
Vesagie NO &
others
v
Erwee
NO & another
[2014] ZASCA
121
wherein it was held that where a credit provider is
unregistered, the agreement is unlawful and the court is required to
declare
the agreement null and void ab initio.
[3]
Chevron SA (Pty) Ltd v Wilson t/a Wilson
Transport
[2015] ZACC 15
;
2015
(10) BCLR 1158
(CC).
[4]
Van Heerden v Nolte
2014 (4) SA 584
(GP) para 14.
[5]
National Credit Regulator v Opperman &
others
[2012] ZACC 29
;
2013
(2) SA 1
(CC) (
Opperman
)
.
[6]
Potgieter v Olivier & another
2016 (1) SA 272
(GP) (
Potgieter)
para 28 and 30-33.
[7]
See also
Naude &
another v Wright
[2017] ZAGPPHC 646
para 26 where the court held it was bound by
Friend
.
[8]
Opperman v Boonzaaier & others
[2012] ZAWCHC 27.
[9]
P
ara 3.
[10]
Opperman
fn 5
para 4.
[11]
Shaw & another v Mackintosh & another
[2018] ZASCA 53
(
Shaw
).
[12]
Natal Joint Municipal Pension Fund v Endumeni
Municipality
[2012] ZASCA 13
;
2012 (4)
SA 593
(SCA) para 18.
[13]
Note that this section was amended by Act 19 of
2014. The new section 42(1) reads ‘The Minister, by notice in
the Gazette,
must determine a threshold for the purpose of
determining whether a credit provider is required to be registered
in terms of
section 40(1).
[14]
Item 5,
National Credit Act Regulations
, GN713, 1
June 2006. The current threshold is nil as per item 2, National
Credit Act Regulations, GN513, 11 May 2016.
[15]
Fn 6 para 33.
[16]
See the minority judgment, of Cameron J, in
Opperman
fn 5 para 105.