Van Rooyen v Jordaan and Another (4317/2010) [2013] ZAGPPHC 383 (20 November 2013)

78 Reportability

Banking and Finance

Brief Summary

Debt Review — Termination of debt review — Consumer in default — Applicant, a registered debt counsellor, sought to set aside the termination of the debt review process by the credit provider, arguing that the consumer was not in default as payments were made in accordance with a restructuring proposal. The credit provider contended that the consumer had made irregular payments and was entitled to terminate the debt review under section 86(10) of the National Credit Act. The court held that the credit provider's right to terminate the debt review only applies when the consumer is in default, and since the consumer had applied for debt review prior to default, the termination was invalid. The court ordered the credit provider to participate in the ongoing debt review process.

Comprehensive Summary

Summary of Judgment

1. Introduction

The proceedings took the form of an application brought in the North Gauteng High Court, Pretoria, purportedly in terms of section 86(11) of the National Credit Act 34 of 2005 (“the NCA”). The application sought to undo the consequences of a section 86(10) termination of a debt review and to compel renewed participation by the credit provider in the debt review process.

The applicant, Ms Burnadette Ida van Rooyen, acted in her capacity as a registered debt counsellor. The first respondent, Mr Alexander Antonio Jordaan, was the consumer under a home loan agreement. The second respondent, Standard Bank, was the credit provider and mortgagee under a home loan agreement secured by a registered mortgage bond over the first respondent’s property.

The application arose against the backdrop of enforcement litigation. After the debt review process had been terminated by Standard Bank in terms of section 86(10), Standard Bank issued summons against Mr Jordaan for payment of amounts owing under the home loan agreement and sought summary judgment. That summary judgment application was postponed sine die to afford the consumer an opportunity to bring an application under section 86(11). The present application was then launched, seeking (in substance) to set aside the termination of the debt review and to compel Standard Bank’s participation in the magistrates’ court debt review proceedings.

The general subject-matter of the dispute concerned the interaction between termination of debt review under section 86(10), the consumer’s alleged attempts to make reduced payments pursuant to a restructuring proposal, and the court’s power to order a resumption of debt review under section 86(11) once enforcement proceedings are pursued.

2. Material Facts

It was common cause that Standard Bank and Mr Jordaan were parties to a home loan agreement regulated by the NCA and secured by a mortgage bond. The original monthly instalment was R9 346,02.

It was also common cause that Mr Jordaan fell into arrears and that, on 23 April 2009, he applied for debt review to a debt counsellor in terms of section 86(1), with notice provided to listed credit providers including Standard Bank. The debt counsellor formulated a proposed re-arrangement involving an extension of the repayment period and a reduction of instalments, and this proposal was communicated to affected credit providers.

On 23 November 2010, Standard Bank delivered a notice in terms of section 86(10) terminating the debt review. Thereafter Standard Bank instituted enforcement proceedings by issuing summons for R949 227,54, together with interest, under the home loan agreement. A summary judgment application was subsequently postponed in order to afford an opportunity for an application in terms of section 86(11).

A further fact treated by the court as established on the papers was that the debt review referral to the magistrates’ court (Pretoria North) occurred only on 15 December 2010, approximately 20 months after the initial debt review application to the debt counsellor, and after the section 86(10) termination notice had been given.

The parties differed materially on the factual question whether Mr Jordaan, after applying for debt review, had made regular and consistent payments to Standard Bank in accordance with the debt counsellor’s proposed restructuring. The debt counsellor contended that payments were being made in terms of proposals and that Mr Jordaan should not be regarded as “in default” for purposes of section 86(10). Standard Bank disputed this, relying on the payment history (referred to as Annexure “E”) and contending that payments were inconsistent and often short, and that the proposal contemplated instalments reduced to almost 50% of the original contractual instalment.

In evaluating whether any basis existed to order a resumption of debt review, the court accepted that Mr Jordaan had been in default when he applied for debt review and considered the irregularity of payments after the proposal, together with the substantial reduction in instalments and the extended payment period, as relevant contextual facts.

3. Legal Issues

The court identified two central legal questions.

The first was whether Standard Bank was legally entitled to terminate the debt review process in terms of section 86(10) in the circumstances of the matter. This question primarily concerned the application of statutory requirements to established facts, particularly whether the consumer was “in default” and whether the statutory time period had elapsed.

The second was whether the court should order Standard Bank to resume participation in the debt review process under section 86(11), in circumstances where enforcement proceedings had been instituted. This entailed an evaluative determination involving the exercise of a discretion informed by the conduct of the parties and by whether the proposed re-arrangement appeared capable of achieving the statutory objectives of responsible debt re-arrangement and satisfaction of obligations.

A preliminary issue was raised by Standard Bank regarding the applicant debt counsellor’s locus standi to bring the application. The court elected not to determine that objection and instead proceeded on the assumption, for purposes of the judgment, that the applicant had the necessary standing, resolving the matter on the merits.

4. Court’s Reasoning

The court set out the statutory framework. Section 86(10) permits a credit provider to terminate a debt review if the consumer is in default under the reviewed agreement, and if at least 60 business days have passed since the consumer applied for debt review. Section 86(11) provides that if a credit provider terminates in terms of section 86(10) and proceeds to enforce the agreement, the court hearing the enforcement may order the debt review to resume on conditions considered just.

In approaching the meaning and operation of section 86(10), the court relied on the Supreme Court of Appeal’s interpretation in Collet v Firstrand Bank (766/2010) [2011] ZASCA 78 (27 May 2011), which overturned an earlier view that termination was unavailable once a matter had been referred to the magistrates’ court. The court understood Collet to establish that a credit provider’s right to terminate under section 86(10) continues until the magistrates’ court makes an order under section 87, and that the statutory right arises only where the consumer is in default and after the 60-business-day period has elapsed.

Applying these principles, the court reasoned that the statutory prerequisites for termination were satisfied on the common-cause facts. It was common cause that Mr Jordaan was in default when he applied for debt review on 23 April 2009. By the time Standard Bank delivered the section 86(10) notice on 23 November 2010, more than 60 business days had elapsed. The court further regarded it as significant that the debt review was referred to the magistrates’ court only on 15 December 2010, meaning that termination occurred before the referral. On this basis, the court rejected the debt counsellor’s submission that payments made under a proposal meant that the consumer was not “in default” for purposes of section 86(10), and concluded that Standard Bank was legally entitled to terminate the debt review.

Turning to section 86(11), the court treated it as the statutory counterweight to section 86(10). Relying on Collet and on Seyffert and Another v Firstrand Bank Ltd t/a First National Bank 2012 (6) SA 581 (SCA), the court emphasised that the enforcing court may consider whether there is benefit in permitting the debt review to resume, and that the conduct of both parties and the realism of any proposed re-arrangement are relevant to that evaluation. The court also accepted the proposition, derived from the cited authorities, that over-indebtedness is not a defence on the merits in enforcement proceedings, though the enforcing court retains discretion in relation to summary judgment and resumption of debt review.

In assessing whether resumption should be ordered, the court considered the original instalment, the consumer’s prior default, and the payment history after the restructuring proposal. The court accepted Standard Bank’s contention that payments were inconsistent and irregular, and it considered the proposed reduction in instalments (to almost half the original instalment) and extension of the repayment period as undermining the feasibility of satisfying the debt. In this context, the court concluded that the papers did not establish a basis to infer that Standard Bank failed to negotiate in good faith, nor did they provide sufficient information to justify an order resuming debt review.

The court ultimately reasoned that, given the absence of a realistic proposal capable of leading to satisfaction of obligations, Standard Bank could not be faulted for its stance in the debt review process, and the requirements for intervention under section 86(11) were not met on the information placed before it.

5. Outcome and Relief

The court dismissed the application brought in terms of section 86(11) of the National Credit Act 34 of 2005.

The dismissal was accompanied by an order that the application is dismissed with costs.

Cases Cited

Wesbank a division of Firstrand Bank Ltd v Papier 2011 (2) SA 395 (WCC)

Collet v Firstrand Bank (766/2010) [2011] ZASCA 78 (27 May 2011)

Changing Tides 17 (Pty) Ltd v Grobler and Another [2012] 3 All SA 518 (GNP)

Seyffert and Another v Firstrand Bank Ltd t/a First National Bank 2012 (6) SA 581 (SCA)

Legislation Cited

National Credit Act 34 of 2005 (sections 3(g) and 3(i), 86(1), 86(5)(a), 86(5)(b), 86(7)(c), 86(10), 86(11), 87, 129(1), 130(1)(a); and Part C of Chapter 6)

Rules of Court Cited

No rules of court were cited in the judgment.

Held

The court held that, on the common-cause facts, the consumer was in default when he applied for debt review and the statutory period contemplated by section 86(10) had elapsed before the credit provider delivered its termination notice. The credit provider was accordingly legally entitled to terminate the debt review.

The court further held that the applicant did not place sufficient information before the court to justify an order under section 86(11) that the debt review resume. In particular, the court considered the payment history and the nature of the restructuring proposal and found no adequate basis to conclude that the credit provider failed to participate in good faith or that resumption would be just and productive.

LEGAL PRINCIPLES

Section 86(10) of the National Credit Act 34 of 2005 confers a right on a credit provider to terminate a debt review in respect of a particular credit agreement where the consumer is in default under that agreement and at least 60 business days have passed since the consumer applied for debt review.

The credit provider’s statutory right to terminate under section 86(10) is counterbalanced by section 86(11), which empowers the court hearing enforcement proceedings to order that debt review resume on conditions considered just. The assessment under section 86(11) is evaluative and may take into account the conduct of the parties during the debt review process and the feasibility of any proposed restructuring in achieving satisfaction of the consumer’s responsible financial obligations.

Over-indebtedness, as addressed within the NCA’s debt review scheme, does not operate as a defence on the merits to an enforcement claim, although the enforcing court may consider debt-review-related circumstances when deciding whether to permit resumption of the debt review process in appropriate cases.