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[2013] ZAKZPHC 16
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Black v Stroberg (8960/12) [2013] ZAKZPHC 16 (15 April 2013)
In the KwaZulu-Natal High Court, Pietermaritzburg
Republic of South Africa
Case
No : 8960/12
In
the matter between :
Dean
Ashley Black
...........................................................................................................
Applicant
and
Collin
Stroberg
............................................................................................................
Respondent
Judgment
Lopes J
[1] The applicant in this matter sold his member’s
interest and loan account in a close corporation to the respondent in
terms
of an agreement (‘the sale agreement’) concluded
between the parties on or about the 28
th
October 2011. The
respondent evidently could not pay for the member’s interest,
and the applicant ‘loaned and advanced’
to the respondent
the sum of R1 087 025 for that purpose in terms of an
agreement (‘the loan agreement’)concluded
between the
parties on the 27
th
January 2012. In terms of the loan
agreement :
The respondent undertook to repay the loan by way of
monthly repayments of R50 000 with the first instalment to be
paid on
the 1
st
February 2012;
the respondent undertook to pay interest on the
outstanding amount at the prime lending rate charged by Investec
Bank, which was
then 9% per annum;
in the event of the respondent being in breach of the
repayments, and continuing to be so after receiving written notice
from
the applicant, the applicant was entitled to claim the full
balance of the loan outstanding.
[2] I have placed the words ‘loaned and advanced’
in inverted commas because that is the way the applicant has
described
what he did (see paragraph 4.1 of his founding affidavit).
Save for contending that the loan agreement was unlawful, the
respondent
admits the remaining allegations in that paragraph.
[3] However, it appears from a closer scrutiny of the
papers that money was not ‘loaned and advanced’ pursuant
to the
loan agreement. The following emerges from the application
papers :
(a) the loan agreement has the following preamble :
‘
WHEREAS the Lender, the
Borrower and another entered into a sale and purchase agreement in
relation to the sale of a member’s
interest in Wild Wind
Investments 106 CC on or about 28 October 2011 (“the Sale
Agreement”).
AND WHEREAS the Borrower is due to pay an amount of
R1 087 025 (“the Capital Sum”) to the Lender in
terms
of the Sale Agreement.
AND WHEREAS the Lender has agreed that the Borrower may
pay the Capital Amount in instalments,
NOW, therefore, the parties agree as follows :
The loan
The Lender hereby lends to the Borrower who hereby
borrows the Capital Amount.’
(b) The repayment terms are then set out in the loan
agreement, including the provision that interest is payable on ‘all
outstanding
balances in addition to and together with the
instalment’.
(c) Annexure E2 to the applicant’s founding
affidavit is a copy of an e-mail addressed by the applicant’s
attorneys
to the respondent’s attorney recording the following
:
‘
Pursuant to an agreement as to
the amount that was to be paid for the sale of Dean’s member’s
interest and loan account
in Wild Wind Investments CC, Collin asked
for an indulgence to pay the purchase price in instalments in terms
of a contract prepared
by your office.’
(Dean and Collin are the applicant and respondent
respectively.)
[4] What the above extracts demonstrate is that despite
the applicant’s allegation that money was ‘loaned and
advanced’
to the respondent, what actually happened was :
(a) the applicant sold his member’s interest and
loan account to, inter alia, the respondent;
(b) after the conclusion of the sale agreement the
respondent sought an indulgence to pay off the purchase price;
(c) that indulgence was granted, and the loan agreement
was a consequence.
No money actually changed hands. Had it done so it would
have been a very odd way of doing things because the respondent would
then
have owed the applicant two identical amounts – one for
the shares and one for the money. The applicant, however, has only
sued for one amount representing the purchase price of his member’s
interest and the loan account.
[5] The respondent complied with his contractual
obligations in terms of the loan agreement until the end of June
2012. Thereafter
payments were made in response to breach letters
sent to him by the applicant’s attorney.In response to a breach
letter recording
the respondent’s non-payment of the September
instalment, the respondent’s attorney notified the applicant’s
attorney that because the applicant was not registered as a credit
provider in terms of ss 40(1)(b) of the National Credit Act,
2005
(‘the Act’), the loan agreement was, in terms of ss
40(4), regarded as an unlawful agreement, and void to the
extent
provided for in s 89 of the Act.
[6] Subsec 89(5)(a) of the Act provides that an unlawful
credit agreement in terms of s 89 is void from the date the agreement
was
concluded.
[7] The applicant then brought this application for
payment of the outstanding balance of the loan in the sum of
R787 714,41
together with interest thereon and costs.
S 40 of the Act provides :
’
40. Registration of credit
providers. –
(1)
a person must apply to be registered as a credit provider if –
that person, alone or in conjunction with any
associated person, is the credit provider under at least 100 credit
agreements,
other than incidental credit agreements; or
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
section 42(1).
(2) In determining whether a person is required to
register as a credit provider –
(a)the provisions of subsection (1) apply to the total
number and aggregate principal debt of credit agreements in respect
of which
that person, or any associated person, is the 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.
…’
[8] In argument before me the parties were agreed that :
the applicant falls within the definition of a credit
provider as defined in s 1 of the Act;
the respondent falls within the definition of a
‘consumer’ as defined in s 1 of the Act;
the loan agreement falls within the definition of a
credit agreement as defined in s1 of the Act;
the loan amount exceeded the limit referred to in ss
40(1)(b);
the issue which I am required to determine in this
application is whether the applicant was required to be registered
as a credit
provider in terms of ss 40(1)(b) of the Act.
[9] The applicant conceded in his founding affidavits
that the loan agreement is a ‘credit agreement’ as
defined in
the Act. That concession was clearly made on the basis of
legal advice given to him. He records at sub-paragraph 2.2 of his
founding
affidavit that :
‘
Where I make allegations of
law I do so on the advice of my legal representatives.
”
I
assume that the applicant intended to refer to ‘conclusions of
law’ rather than ‘allegations of law’,
but the
meaning is clear.
[10] If the concession that the loan agreement was a
‘credit agreement’ was made on the basis of incorrect
legal advice
I do not believe that it binds the applicant – a
court is not obliged to accept an incorrect conclusion of law merely
because
a legal practitioner submits that it should!
[11] If the loan agreement is not a credit agreement,
but is classified as an ‘incidental credit agreement’
then, in
terms of s 40 the applicant was not obliged to register as a
credit provider. An incidental credit agreement is defined in s 1 of
the Act as follows :
‘”
incidental credit
agreement
”
means
an agreement, irrespective of its form, in terms of which an account
was tendered for goods or services that have been provided
to the
consumer, or goods or services that are to be provided to the
consumer over a period of time and either or both of the following
conditions apply :
a fee, charge or interest became payable when payment
of an amount charged in terms of that account was not made on or
before
a determined period or date; or
two prices were quoted for settlement of the account,
the lower price being applicable if the account is paid on or before
a determined
date, and the higher price being applicable due to the
account not having been paid by that date.’
[12] A close analysis of what constitutes an incidental
credit agreement is set out by Wallis J in
JMV
Textiles (Pty) Ltd v De Chalain Spareinvest 14 CC and others
2010 (6) SA 173
(KZD).
[13] In the sale agreement the respondent was to have
paid the purchase price, but did not do so. The loan agreement came
about
solely as a result of the respondent’s default in making
payment. The interest charged in the loan agreement clearly seeks
to
compensate the applicant for his non-receipt of the purchase price.
That this is so is evident from the loan agreement which
fixes the
interest rate on the outstanding amount as ‘
the
prime lending rate charged by Investec (currently 9% per annum
compounded monthly in arrears …
’
See
JMV Textiles,
para 17
[14] There is no evidence that the focus of the loan
agreement was that the applicant would provide credit and secure a
profit,
but rather that he would be paid the purchase price of the
sale agreement. There was also no evidence that the applicant was in
the business of loaning money for reward.
[15] Accordingly, the loan agreement falls into the
category of an incidental credit agreement rather than a credit
agreement. That
being so the applicant was not required to register
as a credit provider in terms of s 40 of the Act, and is entitled to
his judgment.
(I should stress that the above interpretation was not
argued before me by counsel.)
[16] Mr
Crampton
who appeared for the respondent,
contended that the applicant was obliged to have registered as a
credit provider by virtue of
the provisions of ss 40(1)(b). To this
end he relied on the unreported judgment of Binns-Ward J in
Filippus
Albertus Opperman and Jacobus Boonzaaier and three others
(WCC
Case No 24887/10). In terms of three written agreements, Opperman
loaned his friend, the first respondent, the sum of R7 000 000.
When he sought to recover the money, the first respondent took the
point that Opperman had not registered as a credit provider
in terms
of ss 40(1)(b) of the Act, and accordingly the loan was unenforceable
and the forfeiture provisions contained in s 89
of the Act were
applicable.
[17] While the judgment principally dealt with the
constitutional challenge to the forfeiture provisions in s 89,
Binns-Ward stated
the following at paragraph 3 of the judgment :
‘
Having regard to the amount
advanced by him to the first respondent, it follows that the
applicant was required by the statutory
provisions to have applied
for registration as a credit provider.’
Although ss 40(1)(b) was not considered in any detail by
Binns-Ward J in arriving at this conclusion, in considering the
forfeiture
provisions he dealt extensively with the nature and
purpose of the Act,
and the requirement that
service providers be registered. He points out (at paragraph 24) that
the information which a registered
credit provider is obliged to
furnish to the National Credit Regulator is of the sort which would
only be meaningful to enable
the Regulator to collect and analyse
information from persons who are in the business of providing credit,
and not from persons
who provide credit on an isolated occasion. At
paragraph 26 of his judgment he continued :
‘
In my view there are a number
of indications in s 40 that the legislature conceived of the credit
provider who requires to be registered
as such in terms of the Act to
be a person, who either alone or in association with others, is
engaged in
the
business
of
providing credit to consumers.’
(the emphasis is contained in the judgment of Binns-Ward
J.)
[18] With regard to ss 40(1)(b) he records at para 26
that the reference to ‘
the
total
principal debt owed to that credit provider under
all
outstanding agreements’
implies
a contemplation of a number of credit agreements, and not just one or
two. He states that this is notwithstanding that the
language used
must encompass within its embrace any person who provides credit in
terms of even a single transaction and that that
single transaction
may qualify as a credit agreement if the principal debt exceeds the
threshold requirement (of R500 000).
[19] In paragraph 27 Binns-Ward J refers to other
provisions in the Act which create the impression that the
legislature had in
mind that only persons who carry on business as
credit providers should be required to register as such. In this
regard he referred
to ss 50(2) of the Act which provides the National
Credit Regulator may enter any premises at which a registered credit
provider
conducts his registered activities during normal business
hours,
and may conduct reasonable enquiries for
compliance purposes. Similarly s 52 caters for the issue of a
certificate of registration,
and requires that a duplicate copy
thereof be kept in each registered location from the time that the
registered credit provider
conducts his registered activities.
[20] The learned judge recorded at paragraph 28 that :
‘
It is also not evident from
the provisions of the statute why a person like the applicant
intending to provide credit on an ad hoc
basis to a personal friend
should, in order to be able to do so in an amount exceeding R500 000,
have to provide information
to the fourth respondent to enable the
latter to consider matters such as the commitments, if any, made by
him or any associated
persons in terms of black economic empowerment
considering the purpose, objects and provisions of the Broad Based
Black Economic
Empowerment Act 2003 (Act No 53 of 2003), or in
connection with combatting over-indebtedness (s 48(1)(a) and (b)).
Indeed the “Memorandum
on the Objects of the National Credit
Bill 2005” that accompanied the proposal to Parliament for the
adoption of the NCA
suggested that the Act would not apply to or
regulate “loans between family members, partners and friends on
an informal
basis”.
…
The content of the prescribed application form for
registration as a credit provider is also consistent with that which
someone
carrying on business as a credit provider might be expected
to complete, rather than a person intending to make just one, or even
two or three
ad hoc
loans
to someone in their ken, even in a large sum.’
[21] Although Binns-Ward J stated that he had made these
observations to record his impression that the forfeiture provisions
being
visited on such a person would be an entirely incidental effect
of the provisions of the Act rather than serving the Act’s
central objectives, they apply with equal force to the interpretation
of ss 40(1)(b).
[22]
Opperman
was approved by a majority of the
Constitutional Court in
National Credit Regulator v Filippus
Albertus Opperman and three others
2013 (2) SA 1
(CC). That court
accepted as a basis for its decision that the applicant in the court
a quo was a credit provider who was required
to register because the
principal debt exceeded the sum of R500 000. The court dealt in
the main with the forfeiture provisions
in ss 89(5)(c) of the Act and
held that they were inconsistent with s 25(1) of the Constitution and
accordingly invalid. The result
of the Constitutional Court decision
would appear to be that a person in the position of the applicant in
this application,who
was held to have been obliged have registered
and who did not do so, will still be able to invoke the provisions of
the common
law relating to an enrichment action in order to recover
the debt owed pursuant to a contract declared to be void by virtue of
the non-registration of the applicant.
[23] In
Bester and others v Coral Lagoon Investments
232 (Pty) Ltd
[2013] ZAWCHC 27
(20 February 2013) the Cape High
Court found that as a credit provider (in that case a proprietary
limited company) had advanced
a shareholder’s loan exceeding
R500 000 in circumstances where it had not been registered in
terms of the Act, the loan
agreement was accordingly void and
unenforceable. Although Henney J in that case found that the facts
were distinguishable from
Opperman
, he nevertheless regarded
the loan agreement as void. It is not, however, clear from the
judgment in
Bester
whether the credit provider was in the
business of providing credit.
[24] Mr
Crampton
also
relied on the decision in
Evans v Smith
2011 (4) 472 (C),
another decision
of Binns-Ward J
in which
the
applicant had advanced various sums to the first respondent which, in
total, exceeded the R500 000 limit. The learned judge
held that
the agreement was void because of the non-registration of the
applicant as a credit provider. There was, however, no
debate
recorded in the judgment (other than the question of the quantum of
the loans) as to whether the credit provider was obliged
to register
because of the nature of its business. It was apparently accepted by
the applicant’s counsel that the contracts
would be affected by
the provisions of s 89 of the Act to the extent that they related to
credit agreements concluded by an unregistered
credit provider.
[25] Mr
Callum
SC, who appeared for the
applicant, submitted that it was not necessary for the applicant to
have registered as a credit provider,
notwithstanding that the loan
in question exceeded the limit of R500 000. Mr
Callum
submitted that I should follow the full bench decision of the North
Gauteng High Court in the matter of
Friend v Sendal
[2012]
ZAGPPHC 162 (3 August 2012).
[26] In that matter Friend had acknowledged in writing
that he was indebted to Sendal, who had lent Friend the sum of
R1 225 000
which he undertook to repay in full on or before
the 1
st
December 2007. He also undertook to pay interest
on the amount calculated at the prime rate charged by Standard Bank
from time
to time on unsecured overdraft facilities. The interest was
to be paid monthly in full on the first of every month. Having paid
a
portion of the capital amount Friend owed Sendal the sum of R620 000
which he was ordered to pay by the North Gauteng High
Court.
[27] The defence was raised that as Sendal was not a
registered credit provider in terms of the Act, the loan agreement
was void.
After analysing the provisions of s 40 of the Act, Legodi J
came to the conclusion that Sendal did not have to register as a
credit
provider, and the defence of invalidity of the agreement
pursuant to the non-registration of the credit provider in terms of
the
Act was rejected.
[28] One of the reasons for the decision of that court
was that it is the frequency of the credit provider’s
activities which
is relevant to an interpretation of the provisions
of ss 40(1)(b).In my respectful view, the frequency of lending
transactions
on the part of the credit provider is dealt with in ss
40(1)(a). Ss 40(1)(b) deals with a credit provider who has lent, in
the
aggregate of all the deals which he has concluded, whether they
be one or more, a sum in excess of the limit of R500 000.
[29] The argument which is perhaps more persuasive is
that the nature and purpose of the Act contemplates that persons who
are required
to be registered are those who are part and parcel of
what may be referred to as the credit providing industry. In this
regard
I refer to the observations of Binns-Ward J in
Opperman
with regard to the purpose underlying the requirement of registration
by credit providers, indicated by the obligations in terms
of the Act
placed upon those who are registered as credit providers.
[30] I agree with the submission that it could not have
been the intention of the Act to insist that an individual who makes
a loan
to another at arm’s length (albeit one for more than
R500 000), is required to register as a credit provider in terms
of the Act. In my view the logic of this is not affected by the fact
that such an individual may have made more than one loan.
[31] The provisions of ss 40(1)(a) suggest that what the
legislature intended was that persons who make it their business to
provide
finance at a cost to the consumer should be required to be
registered. That such persons should be properly regulated and
required
to give to the National Credit Regulator an account of their
activities from time to time, would be in accordance with the aim of
the Act to protect consumers, particularly those who are vulnerable
to exploitation by unscrupulous lenders.That however, is not
the
situation here.
[32] It is not difficult to understand the indignation
which must have been felt by the applicant in this case when :
he sold his member’s interest and loan account in
a close corporation to the respondent;
the respondent could not pay for the shares;
the applicant thereafter agreed to assist the
respondent in paying for the shares by postponing the date of
payment;
having received the shares in terms of one agreement,
and the ability to delay payment in terms of another, the respondent
then
defaulted after repaying less than a third of the capital.
Having done so, the respondent then suggested that the applicant
could
not sue for the balance he owed on the basis that the
agreement was void because the applicant was not a registered credit
provider.
[33] Mr
Crampton
has submitted that the wording
of ss 40(1)(b) is unambiguous, and the applicant was accordingly
required to be registered. In those
circumstances the applicant would
not be without remedy if the agreement was declared to be void
because, in terms of the Constitutional
Court judgment in
Opperman
,
the applicant would still have the right to pursue his remedies in
terms of a common law enrichment action.
[34] Even if I am wrong about the classification of the
loan agreement as an incidental credit agreement, taking into account
the
nature and the purpose of the requirement that credit providers
be registered in terms of the Act, and given the basis upon which
the
requirements for registration are set out in s 40, I remain
unpersuaded that they were intended to apply to an individual where
there is no suggestion that the individual is involved in the
business of providing credit agreements. The conclusion at which
I
have arrived conforms, in my view, with the fairness and justice of
the matter. The respondent was assisted by the applicant
in terms of
two agreements in respect of which the respondent had his bargain.
The applicant should be entitled to have his.
[35] I accordingly make the following order :
the respondent is directed to pay to the applicant the
sum of R787 714,41 together with interest thereon calculated at
the
rate of 8,5% per annum from the 9
th
August 2012 to
date of payment; and
the respondent is directed to pay the applicant’s
costs, including those costs consequent upon the employment of two
counsel.
Date of hearing : 13
th
March 2013
Date of judgment :15
th
April 2013
Counsel for the Applicant
: R J A Callum SC (instructed by Larson Falconer Hassan Parsee Inc)
Counsel for the
Respondent : D Crampton (instructed by Tomlinson Mnguni James)