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[2013] ZAGPPHC 80
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First National Bank - a Division of Firstrand Bank Ltd v Clear Creek Trading 12 (Pty) Ltd and Another (4549/2011) [2013] ZAGPPHC 80; 2014 (1) SA 23 (GNP) (14 March 2013)
REPORTABLE
IN
THE NORTH GAUTENG HIGH COURT.
PRETORIA
/ES (REPUBLIC OF SOUTH AFRICA)
CASE
NO: 4549/2011
DATE:14/03/2013
IN
THE MATTER BETWEEN
FIRST
NATIONAL BANK - A DIVISION OF
FIRSTRAND
BANK
LIMITED
.........................................................
PLAINTIFF
AND
CLEAR
CREEK TRADING 12 (PTY) LTD
...................................
1ST
DEFENDANT
LUCKY
SOLOMON SELEMELA
…..............................................
2nd
DEFENDANT
JUDGMENT
KOLLAPEN,
J
[1]
Plaintiff issued summons against the first and second defendants in
which it sought payment of the sum of R740 901,78 as well
as
ancillary relief arising out of a home loan agreement entered into
between the plaintiff and the first defendant and in respect
of which
the second defendant bound himself as surety and co-principal debtor
for the obligations of the first defendant.
[2]
Defendant defended the action and has filed a plea herein to which
reference will be made later.
[3]
In the summons and declaration, the plaintiff based its action on a
home loan agreement entered into between itself and the
first
defendant in respect of which certain monies were advanced to the
first defendant and attached a copy of the home loan agreement
to its
summons and requested that the contents thereof "be read as if
specifically pleaded and incorporated herein by reference”.
[4]
The home loan agreement provides in clause 1 thereof as follows:
"This
agreement is governed by the National Credit Act 34 of 2005 ('the
Act’)/’
In
addition page 13 of the written agreement entered into between the
plaintiff and the first defendant provides as follows:
’’
The
bank shall be bound by the terms and conditions of this agreement on
receipt by the bank of this agreement duly initialed and
signed by
the customer.”
There
appears to be no dispute that the reference to ‘the bank’
is in fact a reference to the plaintiff and that the
reference to the
customer is a reference to the first defendant and that indeed the
first defendant initialed and signed the agreement
as contemplated.
[5]
The defendants in resisting the action of the plaintiff and in their
plea to the plaintiffs declaration alleged that the agreement
upon
which the plaintiff sought to rely and to which reference has already
been made was unlawful in terms of section 90(2)(a)(ii)
of the
National Credit Act 34 of 2005 (‘the Act’). In addition
the defendant pleaded that the plaintiff failed to act
in terms of
section 81
(2) and
81
(3) of the
National Credit Act as
it failed
inter alia to properly assess the consumers' (defendants) general
understanding and appreciation of the risks and costs
of the proposed
credit, and of rights and obligations of the defendants under the
agreement. The defences raised by the defendants
are located
exclusively within the Act.
[6]
At the commencement of the trial the parties agreed that the
preliminary question for determination was whether the
National
Credit Act was
applicable to the agreement entered into between the
parties. In addition the parties agreed to argue the matter of the
applicability
or otherwise of the
National Credit Act on
the
pleadings and on the following common cause facts:-
Common
cause facts for the purposes of the argument regarding the
applicability or otherwise of the National Credit Act:
[7]
(a) The plaintiff and the first defendant entered into a home loan
agreement on 13 February 2008.
(b)
It was a provision of the home loan agreement that the
National
Credit Act would
apply to it.
(c)
The second defendant signed a suretyship binding himself to the
plaintiff for the due and punctual performance of the obligations
of
the first defendant to the plaintiff.
(d)
A loan was granted by the plaintiff to the first defendant in the sum
of R750 000,00 which was to be advanced to the first defendant
upon
registration of a bond in favour of the plaintiff and in respect of
the property known as Erf 11 Wonderkrate Vakansiedorp
Township,
Registration Division KR Limpopo Province and over which a mortgage
bond has been registered in favour of the plaintiff.
The property is
a vacant erf.
(e)
The value of the aforementioned property at the time of the loan was
R100 000,00.
(f)
The property was the only asset of the first defendant and it had no
other business or no other income apart from its ownership
of the
property aforementioned.
(g)
Attorneys for the plaintiff dispatched a letter in terms of
section
129
read with
section 130
of the
National Credit Act on
29 November
2010 to the first defendant.
[8]
The plaintiff contended that the
National Credit Act, notwithstanding
the
reference to it in the home loan agreement, was not applicable to
the agreement entered into between the parties by virtue of the
provisions of
section 4(1
)(b) read together with
section 9(4)
of the
National Credit Act.
>
Section
4 of the Act, which deals with the application of the Act, provides
that the Act is applicable to every credit agreement.
A number of
exceptions are provided and one of them as provided in Section 4(1
)(b) relates to:
"A
large agreement, as described in section 9(4), in terms of which the
consumer is a juristic person whose asset value or
annual turnover is
at the time the agreement is made below the threshold value
determined by the Minister in terms of section 7(1)."
It
was not disputed that the first defendant was a juristic person as
described in section 4(1 )(b). Section 9(4) of the Act describes
a
large agreement as including a mortgage agreement. Accordingly if one
has regard exclusively to the provisions of Section (4)(l)(b)
read
with Section 9(4), then the agreement entered into between the
plaintiff and the first defendant is of the kind excluded from
the
scope of the Act.
[9]
It was accordingly contended on behalf of the plaintiff that
notwithstanding the reference in the agreement to the applicability
of the Act and notwithstanding that the plaintiff elected to write to
the first defendant in terms of section 129 read with section
130 of
the Act, that the Act was simply not applicable on the basis that the
provisions of the Act excluded this particular agreement.
Counsel for
the plaintiff in response to questions by the court suggested that
the reference in the agreement to the applicability
of the Act as
well as the dispatch of the letter in terms of section 129 was
probably a mistake and should be ignored by the court.
[10]
In this regard, and it is not in dispute, that there was no
application brought by the plaintiff for the rectification of the
written agreement nor was a replication filed on its behalf in
response to the plea filed by the defendants to which reference
has
already been made and which the defendants placed reliance
exclusively on the provisions of the Act.
[11]
Counsel for the defendants took the stance that notwithstanding the
provisions of the Act, in particular section 4(1 )(b) and
section 9
thereof, parties to a private contract enjoyed contractual freedom
and as a general principle courts were obliged to
uphold the
agreements entered into between such parties. It was argued that
notwithstanding that the Act may not have been applicable
if regard
be had objectively to the provisions of the Act, where the parties by
their specific agreement made the Act applicable
to their contract
then ordinarily speaking a court should uphold such an agreement
unless there were compelling reasons not to
do so.
Discussion
[10]
The author Christie Law of Contract in South Africa 6th edition says
that "the law of contract is of fundamental importance
in the
modem world because it is woven into and inseparable from every form
of economic activity". One may argue that its
relevance extends
beyond economic activity and that it has acquired a centrality in the
manner in which society functions and in
the manner in which people
go about conducting their business. It is essential to the orderly
functioning of society to the extent
that it contributes to an
environment that is conducive to predictability and certainty.
[11]
Our courts have over time recognized the sanctity of agreements
entered into voluntarily and in Rood v Wallach 1904 TS 187
at 201
INNES, CJ concluded as follows:
"From
the authorities I have quoted, and there are many others, the rule of
the Roman Dutch law seems clear - every agreement,
not manifestly
impossible, made deliberately and seriously, by persons capable of
contracting, and having a ground or reason which
is not immoral or
forbidden by law, may be enforced by action, subject of course to any
special legal defences which may arise
in particular cases."
[12]
While this case was decided long before the advent of a
constitutional democracy in South Africa, our courts post the 1994
Constitution have also had to apply their mind to this principle of
contractual freedom and in Barkhuizen v Napier 2007 (5) SA
323 (CC)
the court expressed the following at paragraph 57 in the context of
determining the fairness of a contractual provision:
"The
first question involves the weighing up of two considerations. On the
one hand public policy, as informed by the Constitution,
requires in
general that parties should comply with contractual obligations that
have been freely and voluntarily undertaken. This
consideration is
expressed in the maxim pacta sunt servanda, which, as the Supreme
Court of Appeal has repeatedly noted, gives
effect to the central
constitutional values of freedom and dignity. Self-autonomy, or the
ability to regulate one's own affairs,
even to one's own detriment,
is the very essence of freedom and a vital part of dignity."
Further
at paragraph 87 the court said that:
"Pacta
sunt servanda is a profoundly moral principle, on which the coherence
of any society relies. It is also a universally
recognized legal
principle."
[13]
Accordingly and if one has regard to both the philosophy underpinning
contractual freedom as well as the dicta by our courts
over more than
a hundred years, then there can be little argument that in the
absence of any weighty considerations that would
suggest otherwise,
contracting parties should be bound to the agreements they enter into
freely and voluntarily.
[14]
In casu and in the absence of any serious argument that the inclusion
in the home loan agreement of a clause making the Credit
Act
applicable was a mistake, the court should accordingly hold the
parties to the agreement that they voluntarily concluded.
[15]
It would have been abundantly clear to the plaintiff upon receipt of
the defendant's plea that the latter relied on and based
their
defences on the provisions of the
National Credit Act. Such
reliance
thereon could hardly have been said to be misplaced having regard to
the fact that the home loan agreement provided for
the applicability
of the Act, that the plaintiffs declaration contained an allegation
that the provisions of the
National Credit Act had
been complied with
and that it was common cause the plaintiff had dispatched letters to
the first defendant in terms of
section 129
read with section 130 of
the Act. In this regard these actions of the plaintiff were
consistent with the Act being applicable to
the home loan agreement.
If the plaintiff held a different view it would have been open to the
plaintiff if its stance was that
the reference to the
National Credit
Act was
a mistake, to have applied for rectification of the
agreement. It elected not to do so and one must be extremely cautious
to attach
any weight to the oral submissions made by plaintiffs
counsel that reference to the applicability of the Act and the
dispatch of
a letter in terms of Section 129 by the plaintiff was a
mistake.
[16]
If the plaintiffs stance was that the written agreement did not
correctly reflect the prior agreement entered into between
the
parties or indeed the common intention
of
the parties then the proper course for the plaintiff would have been
to seek rectification. It is also trite that while the written
contract stands unrectified it must exclude evidence to prove the
true version by the combined effect of the parol evidence rule
and
the rule that no evidence may be given to alter the clear and
unambiguous meaning of a written contract. (See Christie at page
344). Accordingly on this leg of the argument it can hardly be
suggested with any degree of persuasion that the court should ignore
the written agreement entered into between the parties simply because
there is a generalized suggestion that it may have been a
mistake. In
my view and subject to what is contained below, the general
principles of our law of contract indeed enjoin a court
under such
circumstances to uphold and enforce the agreement.
[17]
Arising from the above is the issue of whether the parties may by
their agreement, contract to have their agreement covered
by the
provisions of a legislative enactment under circumstances where the
legislative enactment itself excludes that kind of agreement
from its
scope.
[18]
It is not in dispute that if one has regard to the provisions of
section 4(l)(b) read with section 9(4) of the Act, it is clear
that
the Legislature specifically defined the scope and extent of the
Act’s applicability. In addition the architecture of
our
constitutional order vests with the Legislature the law-making
function and no other organ of State or a private entity can
intrude
upon the legislative competency of Parliament.
[21]
In my view and absent any principle in law that would stand in
opposition to the ordinary right of contracting parties to reach
agreement on the terms and conditions of their contract and to invoke
for their mutual benefit the protection of a statute, any
agreement
so concluded should be binding. Of course in doing so the parties
should not be permitted to intrude upon the legislative
authority of
Parliament or to undermine the letter and spirit of legislation. To
determine the question of whether such an agreement
intrudes upon the
authority of Parliament, or in deciding whether there are compelling
reasons not to uphold the agreement, a number
of factors would
require consideration. The starting point however in any such
exercise must be the recognition of the right to
freedom of contract
of the parties, which is a wide and generous right.
Some
of the factors that are relevant and that require consideration
include:
(a)
the nature, purpose and objectives of the act of Parliament in
question that the parties seek to incorporate and make applicable
to
their agreement;
(b)
the question of whether the agreement between the parties seeks to
advance the objectives of the act of Parliament or whether
such
agreement has the effect of detracting from or undermining the
objectives of the act of Parliament;
(c)
whether the agreement entered into between the parties purports to
create obligations for other entities who are not parties
to the
agreement but who may have obligations provided by the Legislature in
terms of the Act of Parliament that the parties wish
to make
applicable to the agreement;
(d)
whether the imperatives of public policy make such an agreement
offensive or whether it could be argued that the dictates of
public
policy require that such an agreement be enforced;
(e)
whether giving effect to the agreement is likely to offend the
principle of separation of powers and / or undermine the legislative
authority of Parliament; and
(e)
the facts and circumstances of the particular matter on hand
[22]The
purpose of the
National Credit Act is
described in Section 3 of the
Act. The purpose is to:
“
promote
and advance the social and economic welfare of South Africans, to
promote a fair, transparent, competitive, sustainable,
responsible,
efficient, effective and accessible credit market and industry, and
to protect consumers.
The
Act accordingly seeks to bring within the credit marketplace fair and
non- discriminatory provisions and broadly speaking seeks
to advance
the values of fairness, equality and freedom within the credit
industry. In addition the Act contains a number of provisions
specifically designed for the protection of the consumer. The
Constitutional Court in Sebola v Standard Bank
2012 (5) S A 142
CC,
in determining the jurisdictional issue before it and examining the
goals of the Act and the means by which they are to be
pursued,
concluded that the goals of the Act and the means by which they are
to be pursued are “intimately connected to the
Constitution’s
commitment to achieving equality”. The Act accordingly in
seeking to protect consumers, advances the
constitutional imperative
of equality. In casu the agreement between the parties simply seeks
to extend this protection by mutual
agreement and in doing so it must
be eminently arguable that even if it was not their stated intention
of doing so, the parties
were by their agreement seeking to advance
an objective of the Constitution. That in itself can hardly be
objectionable. On the
contrary, such conduct to the extent that it is
consistent with the values of the Constitution, should be welcomed
and recognized,
in particular when it is the product of the voluntary
conduct of contracting parties. I can find no persuasion in the
argument
that if the stated intention of the Act is to protect
consumers, then a consumer who falls outside of the Act (as the first
defendant
does in this matter), is precluded by some principle from
mutually agreeing to have the protection of the Act extended to it.
[23]
From the above it must necessarily follow that the agreement entered
into between the plaintiff and the first defendant to
the extent that
it purports to incorporate the provisions of the Act, advances the
objectives of the Act to which reference has
already been made, by
extending the mutual and reciprocal protections the Act contains both
for consumers and credit-givers to
the specific agreement between the
parties. Again there can hardly be any principled objection to the
parties seeking to regulate
their private agreement by benchmarking
it to the Act and agreeing to make the Act applicable to their
agreement.
[24]
The next consideration is whether the agreement entered into between
the plaintiff and the first defendant making the Act applicable
may
have the unintended result that it creates obligations for third
parties or other regulatory bodies that have general duties
in terms
of the Act. That is an important consideration as it could hardly be
argued that contracting parties can bind third parties
who are not
parties to their agreement simply because they choose to do so. Such
a stance would militate against the dictates of
fairness but would
also potentially undermine the very objective of the act of
Parliament in question if regulatory bodies whose
scope, authority
and obligations are clearly defined were tasked with additional
obligations hardly contemplated by Parliament.
When one considers the
matter on hand then the agreement by the plaintiff and the first
defendant to have the Act applicable to
the home loan agreement
entered into has very limited consequences for third parties, if any
at all. Certainly in the context of
the dispute that has arisen, no
third party or regulatory body has been called upon to perform any
function outside of its mandated
scope. The main thrust of the
defence raised is that credit was granted recklessly, and the
adjudication of this vests with the
Court. Of course this may not be
so in every instance. In this regard and to avoid unintended
consequences for third parties or
agencies, each case would have to
be considered on its merits in the determination of whether or not to
uphold such agreement.
However it does not necessarily follow that
even if such unintended consequences arise, the result will always be
not to uphold
the agreement. It must be arguable in such instances
that at the very least the reciprocal obligations and duties that the
Act
creates between the parties can under those circumstances still
exist independently and be incorporated into any agreement that
parties may enter. The issue does not arise here, and there is
accordingly no need to consider it any further.
[25]
From a public policy perspective and for the reasons already alluded
to there can be no compelling argument that considerations
of public
policy militate against such an agreement being honoured simply
because one of its objectives seeks to extend the scope
of a statute
as between two contracting parties. On the contrary it may be
eminently arguable that the dictates of public policy
to the extent
that it recognizes a wide and generous approach to contractual
freedom, may require such agreements to be given effect
to in
accordance with the intention of the contracting parties in
particular where the effect thereof is consistent with the scope
and
spirit of the lawmaker.
[26]
If regard is had to the common cause facts then clearly the
circumstances under which this agreement was concluded, including
the
fact that the plaintiff advanced a loan of R750 000,00 to the first
defendant to purchase a property that was worth no more
than R100
000,00 as well as the very nominal difference between the first and
the second defendants who by all accounts were substantially
the same
entity at the time of contracting, then this is precisely the kind of
context and underlying factual matrix for which
the Act was intended.
It is hardly the case of a juristic person with an independent
identity and presence of its own seeking to
benefit from the Act.
Given the position of the first defendant and the value of the
property, in reality it was always and still
is the second defendant
who faces the greatest risk and exposure from the agreement. Those
factors must also weigh considerably
in favour of upholding the
agreement.
[27]
Finally there is nothing to suggest that the principle of the
separation of powers or Parliament’s legislative authority
will
be undermined by upholding the agreement. In this regard Parliament
in creating a list of exceptions to the application of
the Act did
not go so far as to create prohibitions with regard to any extended
scope of the Act. The exceptions may have been
motivated by common
sense and a general sense of fairness which is not undermined by the
agreement in question. To the extent that
an exception is
distinguishable from a prohibition, it can hardly be said that the
language of the Act, which is couched in non-prohibitory
terms, can
represent an insurmountable obstacle to the right of the contracting
parties as the plaintiff contends. If anything
the agreement is
consistent with the spirit of the Act.
[28
] I accordingly can find no substantive reason why the agreement
entered into between the parties to the effect that the Credit
Act
would be applicable should not be enforced. On the contrary,
considerations of contractual freedom, the pacta sunt servanda
principle and indeed to the extent that it is relevant,
considerations of public policy point strongly in the direction that
compellingly
suggest that the agreement should be enforced as agreed
to by the parties. In all the circumstances I am satisfied that the
National Credit Act should
be applicable to the agreement entered
into between the parties as provided for in clause 1 thereof.
In
the result I make the following order:
1.
The provisions of the
National Credit Act 34 of 2005
are applicable
in respect of the home loan agreement entered into between the
plaintiff and the first defendant on 13 February
2008.
2.
The plaintiff is directed to pay the costs of the first and second
defendant in respect of the argument relevant to the applicability
of
the
National Credit Act.
N
KOLLAPEN
JUDGE
OF THE NORTH GAUTENG HIGH COURT
4549-2011
HEARD
ON: 07 FEBRUARY 2013
FOR
THE PLAINTIFF: ADV A J VENTER
INSTRUCTED
BY: STRAUSS DALY INCORPORATED
FOR
THE DEFENDANTS: B LESOMO
INSTRUCTED
BY: B LESOMO INCORPORATED ATTORNEYS