Bafana Finance Mabopane v Makwakwa and Another (475/04) [2006] ZASCA 46; 2006 (4) SA 581 (SCA) ; [2006] 4 All SA 1 (SCA) (30 March 2006)

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Bafana Finance Mabopane v Makwakwa and Another (475/04) [2006] ZASCA 46; 2006 (4) SA 581 (SCA) ; [2006] 4 All SA 1 (SCA) (30 March 2006)

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THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
Case No 475/04
REPORTABLE
In the matter between:
BAFANA
FINANCE MABOPANE APPELLANT
and
MOSHE
SIMON MAKWAKWA FIRST RESPONDENT
MINAH
MAKWAKWA SECOND RESPONDENT
Coram: Harms, Conradie,
Cloete, Van Heerden JJA et Cachalia AJA
Heard: 16
March 2006
Delivered: 30 March 2006
Summary: A clause in a
micro-lending agreement which prevents a debtor (borrower) from
applying for his estate to be placed under
administration in terms of
s 74 of the Magistrates’ Court Act 32 of 1944 is contrary to public
policy.
Neutral citation: This judgment
may be referred to as
Bafana Finance Mabopane v Makwakwa
[2006] SCA 49 (RSA)
_____________________________________________________
JUDGMENT
_____________________________________________________
CACHALIA
AJA
[1] This appeal raises the question of
the enforceability of a clause in a money-lending agreement in terms
of which the borrower
(debtor) purported to waive his statutory right
to apply to a magistrate’s court for an order placing his estate
under administration.
This right is conferred on a debtor, in terms
of
section 74(1)
of the
Magistrates’ Courts Act 32 of 1944
, if he
is unable immediately to pay the amount of a judgment obtained
against him or to meet his financial obligations and has insufficient
assets capable of attachment to satisfy the debt.
1
It is also available to a judgment debtor who is summoned to a court
enquiry into his financial position.
2
In these circumstances the court may grant an order placing the
debtor’s estate under administration and for the payment of his
debts in instalments or otherwise.
3
The effect of the order is to reschedule payment of the debtor’s
debts under the direction of an administrator, thus granting
temporary
respite from the predations of creditors.
4
In this sense an administration order is aptly described as a ‘debt
relief measure’.
5
[2] The appellant conducts business as
a micro-lender. The business operates in a rapidly growing industry
6
that grants relatively small short-term loans to generally low-income
earners. The loan is usually intended to tide the borrower
over until
the next pay day. Such loans are extended to borrowers at high
interest rates, justified on the basis of the high risk
that
borrowers may default. They are exempt from the limitations imposed
by the Usury Act 73 of
1968.
7
[3] On 23 May 2003 the appellant lent
R1 700 to the first respondent. In terms of the ‘Acknowledgment of
Debt and Repayment Agreement’
that was concluded between the
parties at the time, he undertook to repay the loan on 25 June 2003
with interest calculated at the
rate of 30% computed over a
repayment period of 1 month. The total amount that he was thus
obliged to repay was R2 210, the finance
charge component being R510.
[4] Clause 14 of the agreement, the
subject of this dispute, reads as follows:
‘
I
will not apply for an administration order as envisaged in s 74 of
Act 32 of 1944, and this debt will not form part of an administration
order, which I might have applied for.’
In its clear terms the clause seeks to
deprive the debtor of resorting to the protection afforded by s 74 of
the Act and to insulate
the debt from the machinery provided for in
that section.
[5] On 25 June 2003, the day the
repayment of the loan was due, the first respondent applied to place
his estate under administration.
The information gleaned from the
application reveals that the first respondent’s gross income is R4
819,33 per month. After deductions
and monthly living expenses are
taken into account, he is left with a monthly amount of R450
available for the payment of creditors.
He has five creditors to
whom the administration order would apply, one of whom is the
appellant. The total amount of the debt
due and payable to these
creditors is R13 250,90. His wife, the second respondent, to whom he
is married in community of property,
has no income. The first
respondent, to whom I shall hereafter refer as ‘the respondent’
for convenience, is uncontestably unable
to meet his financial
obligations as envisaged in s 74(1)(a) of the Act.
[6] The respondent’s application was
heard in the Soshanguve Magistrates’ Court on 7 August 2003. The
appellant opposed the application,
basing its opposition on the terms
of clause 14. Despite such opposition the magistrate granted the
order placing the respondent’s
estate under administration and
included the respondent’s debt of R2 210 that he owes to the
appellant in the administration order.
[7] The appellant appealed to the
Pretoria High Court. That court (per Du Plessis J, Legodi AJ
concurring) also rejected the
appellant’s reliance on clause 14. It
did so on the basis that the proper administration of a debtor’s
estate is not in the interests
of debtors only. It held that the
public interest, particularly the interests of creditors, is also
served thereby. The respondent
was thus not able to waive his right
to apply for an administration order. It accordingly dismissed the
appeal but granted leave
to this court on condition that the
appellant pay the costs of the appeal.
[8] In this court the appellant made
the following submissions:
(a) Section 74 confers the right to
apply for an administration order on a debtor only. This is because
the debtor is its intended
beneficiary. On a proper interpretation of
the section, the public and creditors have no distinct interest in
the application for
an administration order. Whatever benefit may
accrue to creditors while the debtor’s estate is under
administration is merely incidental.
8
(b) Clause 14 is not inimical to the
public interest because it prevents the debtor from applying for an
administration order for
a limited period only, ie while the loan
agreement is extant. The respondent may apply for an order, if he so
wishes, after settling
his debt, which he was obliged to do within 30
days.
(c) The waiver of the right to apply
for an administration order is not on the face of it so unreasonable
that it implicates any public
policy concerns. No evidence was led by
the respondent to suggest that he was in an unequal bargaining
position at the time he contracted
with the appellant.
[9] The legal principles applicable to
this dispute are easy to state. The general rule is expressed by the
Latin maxim:
quilibet potest renuntiare juri pro se introducto
– a person may renounce a right introduced for his own benefit. In
the words of Innes ACJ in
Ritch and Bhyat v Union Government
(Minister of Justice)
:
9
‘
The
maxim of the Civil Law (C.2, 3, 29), that every man is able to
renounce a right conferred by law for his own benefit was fully
recognised by the law of Holland. But it was subject to certain
exceptions, of which one was that no one could renounce a right
contrary
to law, or a right introduced not only for his own benefit
but in the interests of the public as well. (
Grot
., 3, 24, 6;
n. 16;
Schorer
, n. 423;
Schrassert
,
1, c. 1, n.
3, etc.). And the English law on this point is precisely to the same
effect.’
10
Thus, a party to a contract may waive
the benefits conferred upon him by an Act of Parliament unless the
statute expressly or by necessary
implication prohibits waiver.
11
[10] An agreement whereby a party
purports to waive the benefits conferred upon him or her by statute
will be
contra bonos mores
, and therefore not enforceable, if
it can be shown that such agreement would deprive the party of
protection which the legislature
considered should, as a matter of
policy, be afforded by law. An agreement is contrary to public
policy, according to Wille:
12
‘
.
. . if it is opposed to the interests of the state, or of justice, or
of the public.’
This description was adopted by this
court in the well-known case of
Sasfin (Pty) Ltd v Beukes.
13
In addition Wille goes on to state the following:
‘
The
interests of the community or public are of paramount importance in
relation to the concept of public policy; accordingly, agreements
which are clearly inimical to the public interest, whether they are
contrary to law or morality will not be enforced
.
Furthermore, it is the tendency of the proposed transaction, rather
than its proved result, which determines whether or not it is
contrary to public policy.
The
chief classes of agreements contrary to public policy are those which
tend to: (i) injure the state or the public service; (ii)
defeat or
obstruct the administration of justice; or (iii) interfere with the
free exercise by persons of their rights. . ..’
(My
emphasis.)
[11] That a court may not enforce an
agreement because the objective it seeks to achieve is contrary to
public policy is firmly part
of our law.
14
And in this determination ‘public policy’ is anchored in the
founding constitutional values which include human dignity, the
achievement of equality and the advancement of human rights and
freedoms.
15
[12] Whether, in the circumstances of
this case, the respondent was permitted to waive his right to apply
to a magistrate’s court
for his estate to be placed under
administration thus depends in the main on the overall purpose of the
section. It is that analysis
which I now turn to.
[13] This court
16
has recently approved an earlier description
17
of administration under the Act as a ‘modified form of insolvency’
because of its utility in dealing with small uncomplicated
estates
18
where sequestration proceedings would ‘swallow the debtor’s
assets’.
19
Although the existence of an administration order is no bar to the
sequestration of the debtor’s estate,
20
sequestration has the disadvantages that it is not only more
expensive, but is also not usually viable because of the requirement
that a financial advantage to creditors must be proved before a court
will grant a sequestration order.
21
With small estates of the size of the respondent’s such proof
would, more often than not, be elusive.
[14] In practice, therefore,
administration is the only viable statutory protection available to
debtors with small estates whose
finances have fallen on difficult
times. It is a form of protection which may, in certain
circumstances, be forced upon the debtor
for his or her own good.
Thus, under the provisions of subsections 65I(2) and (3), a court
enquiring into the financial affairs of
a debtor against whom a
judgment sounding in money has been granted, may
mero motu
place
his or her estate under administration.
22
What a court is in effect doing when it grants an order in such
circumstances is imposing a ‘debt relief measure’
23
upon the debtor for his or her own good. Counsel for the appellant
pointed out that the respondent’s waiver of his right to apply
for
an administration order in terms of s 74(1) did not affect the
court’s power to place his estate under administration in terms
of
subsections 65I(2) and (3). According to counsel, this supported the
contention that a debtor’s right to apply for an administration
order in terms of s 74(1) must be regarded as a benefit conferred
primarily on the debtor and in the debtor’s interest. This argument
does not hold water. On the contrary, the court’s power
mero
motu
to ‘impose’ an administration order on the debtor in
terms of s 65I simply strengthens the view that, while an
administration
order (whether made in terms of s 74 or s 65I) is
indeed a form of protection for the debtor, designed ‘to ward off
legal action
and execution proceedings’ by creditors,
24
it is also designed to benefit creditors and serve the public
interest, as illustrated further below.
[15] Although the remedies of
creditors are restricted when a debtor’s estate is placed under
administration, they do have certain
rights. The immediate effect of
an administration order is something akin to the institution of a
concursus creditorum.
25
By this is meant that:
[‘T]he hand of the law
is laid upon the estate, and at once the rights of the general body
of creditors have to be taken into consideration
. . .. The claim of
each creditor must be dealt with as it existed at the issue of the
order.’
26
The Act creates the machinery for the
lodging and proof of claims, the adjudication of contentious claims,
objections to the inclusion
of debts in the list of creditors and the
right to object to the manner in which payments must be made in terms
of the order.
27
The conflicting interests of the creditors are thus managed by the
administrator for the benefit of the general body in a manner
that
seeks to achieve a fair distribution of the debtor’s income.
28
[16] A creditor may not circumvent an
administration order. Thus any payment in respect of a debt due at
the time of the granting
of the order, if not done in terms thereof,
is invalid and may be recovered from the creditor by the
administrator unless the payment
was made without the creditor’s
knowledge of the administration order.
29
In addition the creditor forfeits his claim against the debtor’s
estate if payment was made at his request whilst he had knowledge
of
the order.
30
[17] In summary it is apparent that
the main purpose of s 74 is to protect debtors with small estates,
‘usually . . . those who
are poor and either illiterate or
uninformed about the law or both.’
31
It has a second, but also important purpose, which is to ensure that
creditors to whom money is owed and due for payment by the debtor,
are able to recover as much as the administrator permits. There can
be no doubt, therefore, that s 74 was enacted in the public interest.
It is with this in mind that the efficacy of clause 14 must be
determined.
[18] The clause (see para 4 above)
seeks to achieve two objectives: first, to prevent the debtor from
applying for an administration
order so that the debt is not included
in it and secondly, to exclude the debt from any existing order. The
second part of the clause,
viz the purported exclusion of the debt
from an existing order is plainly unenforceable as it constitutes an
attempt to circumvent
an administration order which, as I have
pointed out, is not permissible.
[19] As I mentioned earlier, the
clause seeks to insulate the appellant from the effects of an
administration order. In so doing its
effect is to prevent the debtor
from resorting to the only statutory protection he has, ie to apply
to court for an administration
order. Indeed this was the very basis
of the appellant’s opposition to the respondent’s application for
the administration order.
The implication is that, despite being
‘unable to meet his financial obligations’,
32
he cannot approach a court for relief under s 74.
[20] By way of comparison our courts
have had no difficulty in declaring contracts contrary to public
policy where their
tendency
(see para 10 above) is to restrict
or prevent a person from vindicating his or her rights in the courts.
Thus in
Schierhout v Minister of Justice
33
Kotze JA stated:
‘
If
the terms of an agreement are such as to deprive a party of his legal
rights generally, or to prevent him from seeking redress
at any time
in the Courts of Justice for any future injury or wrong committed
against him, there would be good ground for holding
that such an
undertaking is against the public law of the land.’
In
Standard Bank v Essop of SA
Ltd
,
34
the court, relying on
Schierhout
, declared contrary to public
policy a clause in an agreement which provided that, if the
respondent failed to pay any amount on the
due date, the applicant
would be entitled to reinstate an application for the respondent’s
sequestration on an unopposed motion
roll, and to utilise the
affidavit deposed to by the respondent consenting to a provisional
and final order of sequestration. In
declaring this clause to be
contrary to public policy the court said the following:
‘
In
my opinion, the applicant’s conduct in having purported to
stipulate for these rights was, and remains, unconscionable. It has
purported to empower itself, in the event of any relevant default by
the respondent, to deprive him of his status as a solvent person,
and
inevitably to subject him to all the onerous obligations and
extensive restrictions which bind an insolvent in terms of the Act
.
. . without his being in any event able to defend himself. This
conduct offends my, and in my opinion would offend any reasonable
person’s, sense of . . . justice.’
35
[21] There can be no doubt that the
tendency
of the clause is to deprive the respondent of his
right to approach the court for redress from his parlous financial
position. To
deprive or restrict anyone’s right to seek redress in
court, as the cases cited above make clear, is offensive to one’s
sense
of justice and is inimical to the public interest. When this is
done to a poor person in the circumstances of the respondent, as
the
appellant attempted to do in the present matter, it is even more so.
It is hardly a defence, as counsel for the appellant sought
to
contend, that the restriction is for a limited duration (see para 8
(b) above). In fact, the clause, in express terms, disentitles
the
respondent from applying for an administration order until the debt
is paid, which the respondent is unable to do.
[22] A further difficulty I have with
the clause is that the insulation of the debt from an administration
order, in effect, constitutes
an undue preference for the appellant
.
This is not only highly prejudicial to the respondent, but
potentially to the rights of his other creditors. Our courts have,
for
this very reason, set themselves against pre-sequestration or
pre-liquidation contractual stipulations intended to be operative in
the event of, or after, the institution of the
concursus
.
36
Because the clause is potentially prejudicial to the general body of
creditors, its operation, to use Wille’s characterisation,
referred
to above in para 10, interferes with the free exercise, not only of
the respondent’s rights, but also the creditors’.
It follows that
the magistrate was correct to include the respondent’s debt of R2
210 in the administration order.
[23] In this country, and elsewhere,
courts have struck down bargains whose tendency is inimical to the
policy objectives of statutory
provisions enacted for the protection
of certain classes of persons. Thus, in
Vrystaatse Lewendehawe
Koöperasie Bpk v Pretorius en ‘n ander
,
37
where a debtor, in a contract with a creditor waived all benefits and
protection provided by the Agricultural Credit Act 28 of 1966,
and
the debtor nevertheless applied for assistance under the Act, it was
held that the creditor could not execute against the debtor
as such
assistance that the debtor applied for was provided not only for the
benefit of the debtor, but also for creditors. Similarly,
in
Johnson
v Moreton
38
the House of Lords held that a tenant could not contract out of the
protection afforded by s 24 of the Agricultural Holdings Act
1948 as
this would frustrate the purpose of the Act in promoting efficient
farming in the national interest. Lord Salmon said:
‘
The
security of tenure which tenant farmers were accorded by the Act . .
. was not only for their own protection as an important section
of
the public, nor for the protection of the weak against the strong; it
was for the protection of the nation itself . . . If any
clause such
as clause 27 was valid landlords might well insist upon a similar
clause being introduced into every lease; and prospective
tenants
with no money to buy the land they wanted to farm, would, in reality
have very little choice but to agree. Accordingly if
clause 27 is
enforceable the security of tenure which Parliament clearly intended
to confer, and did confer upon farmers for the
public good would have
become a dead letter.’
39
[24] As I mentioned earlier, s 74 was
enacted as a form of debt relief and protection for low-income
debtors who have fallen on difficult
times. The public interest
requires not only that this class of people be protected, but that
creditors are able to recover their
debts in the orderly manner that
the administrator permits. If, in a similar vein to what Lord Salmon
said in the passage above,
every credit-provider introduced similar
clauses into their contracts with vulnerable debtors who have little
choice but to agree,
s 74 would become a ‘dead letter’ and the
clear intentions of the legislature would be thwarted. This cannot be
countenanced.
[25] Counsel for the parties did not
deal with whether in the determination of public policy, the impugned
clause constituted an infringement
of the respondent’s
constitutional rights. As I mentioned earlier, public policy is now
anchored in the Constitution. However,
in view of the conclusion I
have reached it is not necessary to consider this aspect.
[26] In the result, the appeal is
dismissed with costs, such costs to include those of two counsel.
____________
A
CACHALIA
ACTING
JUDGE OF APPEAL
CONCUR:
HARMS
JA
CONRADIE
JA
CLOETE
JA
VAN
HEERDEN JA
1
Section
74(1)(a).
2
Section
65I(1).
3
Section
74(1)(b).
4
African
Bank Ltd v Weiner and Others
2004
(6) SA 570
(C) para 10.
5
André
Boraine ‘Some thoughts on the reform of administration orders and
related issues’ 2003 (36)
De Jure
217.
6
See
Micro Finance Regulatory Council v AAA Investment (Pty) Ltd
2006 (1) SA 27
(SCA) para 1 fn 3. ‘According to the research of
Professor PG Du Plessis of the University of Stellenbosch –
The
Micro-lending Industry in South Africa, July 1998
– it was
estimated that 80% of South Africa’s adult population were denied
access to retail credit within the mainstream financial
services
industry. The research indicated the size of the cash loan industry
to be approximately R10,1bn-R15bn and that it increased
by 280% over
the past two years. It also showed that there are over 3 500 formal
lending agencies and over 27 000 informal lending
outlets with a
large geographic dispersion. Statistics indicate a current, and near
future, individual market of approximately
3 million borrowers.’
7
De
Beer v Keyser & Others
2002
(1) SA 827
(SCA) para 2.
Section
15A of the Usury Act permits the responsible Minister to exempt
categories of money-lending transactions from its provisions.
It
provides: ‘The Minister may from time to time by notice in the
Gazette
exempt the categories of money lending transactions,
credit transactions or leasing transactions which he may deem fit,
from any
or all of the provisions of this Act on such conditions and
to such extent as he may deem fit, and may at any time in like
manner
revoke or amend any such exemption.’
8
Relying
on
Ex Parte August
2004
(3) SA 268
(W) para 16.
9
1912
AD 719
at 734-735.
10
See
also
SA Co-Op Citrus Exchange v Director-General:
Trade
and Industry
[1997] ZASCA 6
;
1997 (3) SA 236
(SCA) at 242G-243D.
11
McDonald
v Enslin
1960 (2) SA 314
(O); D
Hutchinson, B van Heerden, DP Visser and CG van der Merwe
Wille’s
Principles of South African Law
8ed p 429-430.
12
Wille’s
Principles of South African Law
(supra)
p 431 and authorities there cited.
13
1989
(1) SA 1
(AD) at 8.
14
See
generally Christie
The Law of Contract
4ed p 398-404.
15
Brisley
v Drotsky
2002 (4) SA 1
(SCA)
para 91;
Napier v Barkhuizen
Unreported SCA Case No 569/04
para 7.
16
In
Weiner NO v Broekhuysen
2003 (4) SA 301
(SCA) para 3.
17
In
Madari v Cassim
1950 (2) SA 35
(D) at 38.
18
Section
74(1)(b) states that the total amount of debt due should not exceed
the amount that the Minister has determined in the
Gazette
.
That amount has been determined in terms of GN 53441, 31 December
1992 as R50 000.
19
Weiner
v Broekhuysen
above.
20
Section
74R.
21
Sections
10(c)
,
12
(1)(c) of the
Insolvency Act 24 of 1936
;
Ex Parte Van
Den Berg
1950 (1) SA 816
(W) at 817.
22
Jones
and Buckle
The Civil Practice of the Magistrates’ Courts in
South Africa
Volume 1: The Act
9ed p 305.
23
Para
1 above.
24
See
African Bank v Weiner
above n 4.
25
Jones
and Buckle above n 3 p 306 para ;
Madari v Cassim
above n 17
at 38 as quoted with approval by this court in
Weiner NO v
Broekhuysen
above n 16;
Fortuin v Various Creditors
2004
(2) SA 570
(C) para 11.
26
Per
Innes JA in
Walker v Syfret NO
1911 AD 141
at 146.
27
LTC
Harms
Civil Procedure in Magistrates’ Courts
p 37-11.
28
Prima
Slaghuis (Carletonville) v Roux
1973
(1) SA 108
(T) at 110D-E.
29
Section
74J(14).
30
Section
74J(14).
31
Coetzee
v Government of the Republic of South Africa
[1995] ZACC 7
;
1995
(4) SA 631
(CC) para 8. The description in this case refers to ss
65A-65M, but is equally applicable to s 74.
32
Section
74(1)(a).
33
1925
AD 417
at 424.
34
1997
(4) SA 569
(D).
35
Standard
Bank v Essop
above at 575E-G.
36
See
Meskin
Insolvency Law
p 5-51 and
the cases cited at n 11 thereof.
37
1978
(1) SA 651
(O).
See also
Santam Bank
Bpk v Du Toit
1968 (3) SA 520
(C) at 521. Cf
De Wet v Dauth
1966 (4) SA 57
(O) at 59 where it was held that a benefit
conferred on a farmer under s 7 (1) of the Farmers’ Assistance Act
48 of 1935 could
be waived as it was for the farmers sole benefit.
It is doubtful whether this case was correctly decided.
38
[1980]
AC 37.
39
See
above p 52G-53A
.