Nedbank Ltd t/a MFC, a Division of Nedbank v Ntema (3865/2012) [2013] ZAFSHC 47 (22 March 2013)

80 Reportability

Banking and Finance

Brief Summary

Summary Judgment — National Credit Act — Application for summary judgment by plaintiff for cancellation of agreement and recovery of vehicle — Defendant alleged non-indebtedness and disputed arrears — Court found defendant in default under both credit agreement and debt review order, allowing plaintiff to proceed with legal action — Summary judgment granted in favor of plaintiff.

Comprehensive Summary

Summary of Judgment

Introduction

The proceedings were an application for summary judgment in the Free State High Court, Bloemfontein. The applicant was Nedbank Limited t/a MFC, a Division of Nedbank (the plaintiff in the main action), and the respondent was Matseko Lilian Ntema (the defendant in the main action).

The matter arose after the plaintiff issued summons claiming relief consequent upon an alleged breach of an instalment sale agreement governed by the National Credit Act 34 of 2005. The summons was issued on 4 September 2012 and served on 18 September 2012. The defendant delivered a notice of intention to defend on 19 October 2012, after which the plaintiff pursued summary judgment.

The general subject-matter of the dispute concerned the plaintiff’s entitlement, despite the existence of a magistrates’ court debt review / rearrangement order, to cancel the credit agreement and obtain an order for repossession of the financed motor vehicle, on the basis that the defendant was allegedly in default both under the original credit agreement and under the rearrangement order.

Material Facts

The parties concluded an instalment sale agreement in terms of which the plaintiff sold to the defendant a 2007 Toyota Auris 140 RT (engine number 422U957945, chassis number SB1KM58E70F008415). The total amount repayable in terms of the agreement was R249 796.87, payable in 59 monthly instalments of R4 163.28 commencing on 1 November 2007, and a final instalment of R4 163.35 on 1 October 2012. It was common cause that the defendant was in possession of the vehicle and continued using it, with the plaintiff alleging consequent deterioration and depreciation.

A debt review order (rearrangement order) was granted by the Magistrates’ Court, Bloemfontein on 10 December 2009. The plaintiff alleged that, in terms of that order, a minimum instalment of R2 500.00 per month was payable to it. The defendant disputed that the order “specifically pronounced” the amount as R2 500.00, but did not set out what amount the order required; she also did not dispute that payments had to be made monthly.

The plaintiff alleged that the defendant defaulted under the rearrangement order by making partial payments in several months (including February 2010, April to June 2010, November and December 2010, March 2011, February 2012 and May 2012) and making no payments in others (including January 2010, March 2010, August to October 2010, May 2011, July 2011, March 2012, June 2012 and August 2012). The defendant responded with her own version of payments, attaching a payment history reflecting numerous payments of varying amounts between November 2010 and September 2012. She also alleged that she made a payment on 22 November 2012 to cover arrears for June and August 2012, and stated she was now in a position to pay without a debt counsellor.

As to the indebtedness under the agreement, the plaintiff alleged that the defendant failed to make due and punctual monthly payments and that an amount of R119 356.52 was outstanding as at 13 March 2012, together with interest at 17.76% per annum from that date to final payment, supported by a certificate of balance attached to the particulars of claim. The defendant disputed owing that amount and asserted she had already paid approximately R161 507.00 in respect of the vehicle.

In relation to the interest rate and restructuring, the defendant contended that the interest of 17.76% was “unlawful” or unfair and ought to have been restructured and reduced in terms of the debt review order. The plaintiff maintained the interest rate was fixed by contract and that, due to default under the rearrangement order, it was entitled to enforce its rights under section 88(3) of the National Credit Act 34 of 2005.

Legal Issues

The court was required to determine whether the defendant had shown, for purposes of Uniform Rule of Court 32(3), a bona fide defence that was sufficiently disclosed and good in law, such that summary judgment should be refused.

Within that enquiry, the issues the court identified for determination were whether the defendant was in default in terms of the original instalment sale agreement and whether she was in default in terms of the rearrangement (debt review) court order. Those questions involved the application of law to fact, particularly the application of the National Credit Act’s enforcement provisions to the payment history and the effect of default under a rearrangement order.

A further legal issue arose from the defendant’s contention that the interest rate should have been reduced as part of debt review relief, which raised a legal question regarding the scope of permissible debt review relief and the powers of the magistrates’ court under the National Credit Act.

Court’s Reasoning

The court approached the matter through the framework of Rule 32(3), emphasising that summary judgment is not aimed at shutting out a defendant who has a triable issue, but at preventing delay where there is no genuine defence. The court applied the principle that a defendant must disclose, with sufficient particularity, both the nature and grounds of the defence and the material facts relied upon, and that the defence disclosed must be bona fide and good in law. If that threshold is met, the court is obliged to refuse summary judgment.

Turning to the National Credit Act, the court set out section 88(3) and treated it as establishing jurisdictional requirements that, once met, permit a credit provider to enforce a credit agreement notwithstanding the existence of debt review proceedings or a rearrangement order. The court accepted the proposition that where default under the credit agreement co-exists with default under a rearrangement order, the statutory restraint on enforcement falls away and enforcement may proceed without further notice.

In evaluating the defendant’s opposition, the court characterised the defendant’s denial of indebtedness as a bare denial, lacking supporting material facts explaining why the amount claimed was not owing under the agreement. The court also rejected the contention that the plaintiff was required first to rescind the magistrates’ court order before seeking summary judgment, describing that submission as lacking merit and reflecting a misunderstanding of the relationship between the original agreement, the debt review order, and the National Credit Act’s enforcement mechanism.

On the defendant’s argument that the contractual interest rate should have been reduced as part of debt review, the court relied on the principle that debt review relief under section 86(7)(c)(ii)(aa) may extend the payment period and thereby reduce instalments without reducing the actual amount owing, and that the magistrates’ court is not empowered to reduce the interest rate to provide such relief. The court treated the interest rate as fixed in the parties’ agreement and not susceptible to reduction by the magistrates’ court in the manner suggested by the defendant.

On the facts concerning payment default, the court drew inferences from the defendant’s own papers and payment pattern. Despite her denial that the rearrangement order specified R2 500.00 per month, she did not state what the correct ordered amount was and nonetheless made multiple payments in that amount. The court regarded the payment history and the defendant’s acknowledgment of arrears (and subsequent “catch-up” payment for June and August 2012) as confirming that she was aware of the monthly obligation and that she had not maintained consistent monthly payments. On that basis, the court was satisfied that the defendant was in default under the rearrangement order when summons was issued and was also in arrears under the agreement as at 13 March 2012.

Having found that the defendant failed to disclose a properly articulated defence supported by material facts, and that the asserted defences (including the interest restructuring contention) were not good in law, the court concluded that the defendant’s defence was neither bona fide nor good in law, and that the plaintiff had established entitlement to summary judgment.

Outcome and Relief

The application for summary judgment succeeded. The court granted relief corresponding to prayers 1 and 2 of the notice of motion, namely confirmation of cancellation of the agreement and authorisation for the sheriff to attach, seize, and hand over the specified motor vehicle to the plaintiff (with attendance to confirm such attachment).

Although the plaintiff initially sought costs on an attorney-and-client scale, counsel for the plaintiff abandoned that request. The court ordered costs on a party-and-party scale.

Cases Cited

Joob Joob Investments (Pty) Ltd v Stocks Mavundla Zek Joint Venture 2009 (5) SA 1 (SCA)

Maharaj v Barclays National Bank Ltd 1976 (1) SA 418 (A)

Firstrand Bank Ltd v Fillis and Another 2010 (6) SA 565 (ECP)

Collett v Firstrand Bank Ltd 2011 (4) SA 508 (SCA)

SA Taxi Securitisation (Pty) Ltd v Lennard 2012 (2) SA 456 (ECG)

Legislation Cited

National Credit Act 34 of 2005 (in particular sections 83, 85, 86(4)(b)(i), 86(6)(c), 86(7)(c)(ii)(aa), 86(9), 86(10), 87, and 88(3))

Rules of Court Cited

Uniform Rules of Court, Rule 32(3)

Held

The court held that the defendant did not satisfy the requirements of Rule 32(3) because she failed to disclose, with sufficient particularity, a defence that was bona fide and good in law. The court found that the defendant was in default under both the instalment sale agreement and the magistrates’ court rearrangement order, with the result that the plaintiff was entitled, in terms of section 88(3) of the National Credit Act 34 of 2005, to proceed with enforcement.

The court further held that the defendant’s contention that the contractual interest rate should have been reduced pursuant to debt review was not sustainable in law, because the relevant debt review provisions did not empower the magistrates’ court to reduce the interest rate in the manner alleged.

LEGAL PRINCIPLES

The summary judgment remedy under Uniform Rule 32(3) requires a defendant to place before the court an affidavit that fully discloses the nature and grounds of the defence and the material facts relied upon. It is insufficient to raise a bare denial; the defence must be shown to be bona fide and good in law. Where that threshold is met, the court must refuse summary judgment; where it is not, summary judgment may be granted.

Under section 88(3) of the National Credit Act 34 of 2005, once the consumer is in default under the credit agreement and has defaulted on an obligation under a rearrangement agreement or rearrangement court order, the credit provider is entitled to enforce its rights under the credit agreement by litigation or other judicial process, and the statutory restraint associated with the debt review process falls away.

The debt review relief contemplated by section 86(7)(c)(ii)(aa) may operate by extending the period of payment and thereby reducing the instalment amount, but it does not permit a court, within that mechanism as applied in the judgment, to reduce the contractual interest rate as a form of debt relief.